Debt-to-Income Ratio
The debt to income ratio is a tool lenders use to calculate how much of your income can be used for a monthly mortgage payment after you meet your other monthly debt payments.
Understanding 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.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing (including mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
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. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, and the like.
For example:
With a 28/36 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 want to calculate pre-qualification numbers with your own financial data, please use this Mortgage Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
At Price Mortgage Group LLC, we answer questions about qualifying all the time. Give us a call: 405-513-7700.