Debt-to-Income Ratio
The ratio of debt to income is a formula lenders use to calculate how much of your income can be used for your monthly home loan payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
Typically, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, auto loans, child support, and the like.
Examples:
With a 28/36 ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Loan Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be thrilled to help you pre-qualify to help you determine how large a mortgage you can afford.
Price Mortgage Group LLC can walk you through the pitfalls of getting a mortgage. Call us: 405-513-7700.