Your debt to income ratio is a tool lenders use to determine how much money can be used for your monthly mortgage payment after you meet your various other monthly debt payments.
How to figure your qualifying ratio
Usually, underwriting for conventional mortgage 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, taxes, and homeowners' association dues).
The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt together. Recurring debt includes car payments, child support and credit card payments.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, please use this Loan Qualification Calculator.
Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.
Channel Mortgage LLC can walk you through the pitfalls of getting a mortgage. Call us at (718) 639-9500.