Ratio of Debt-to-Income
The debt to income ratio is a formula lenders use to determine how much money can be used for a monthly home loan payment after all your other monthly debt obligations are fulfilled.
About your qualifying ratio
In general, conventional mortgages need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes things like vehicle payments, child support and credit card payments.
A 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualification Calculator.
Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.
At South County Mortgage, we answer questions about qualifying all the time. Give us a call: (401) 583-4150.