The debt to income ratio is a tool lenders use to determine how much money can be used for a monthly home loan payment after all your other recurring debt obligations have been fulfilled.
About your qualifying ratio
In general, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - 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. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
With a 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 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 Pre-Qualifying Calculator.
Don't forget these are just guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.
At Channel Mortgage LLC, we answer questions about qualifying all the time. Give us a call at 7186399500.