Debt to Income Ratio
The debt to income ratio is a tool lenders use to determine how much money is available for a monthly home loan payment after all your other recurring debt obligations have been fulfilled.
Understanding the qualifying ratio
Typically, underwriting for conventional loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes payments on credit cards, car payments, child support, etcetera.
For example:
28/36 (Conventional)
- 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 want to run your own numbers, feel free to use our Mortgage Loan Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage you can afford.
ADVISORY MORTGAGE can answer questions about these ratios and many others. Call us at 8102292820.