The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other recurring debts are met.
Understanding your qualifying ratio
Typically, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing costs (including 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 should be spent on housing expenses and recurring debt together. Recurring debt includes credit card payments, car payments, child support, and the like.
- 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 Mortgage Loan Pre-Qualification Calculator.
Remember these are just guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.
The Mortgage Firm - Team Meyers can answer questions about these ratios and many others. Give us a call at (407) 889-4321.