Your debt to income ratio is a formula lenders use to determine how much money can be used for a monthly home loan payment after all your other monthly debt obligations have been met.
How to figure your qualifying ratio
For the most part, underwriting for conventional mortgages needs 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 amount (as a percentage) of your gross monthly income that can be applied to housing (including principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes things like vehicle payments, child support and credit card payments.
A 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, use this Loan Qualification Calculator.
Remember these are only guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.
At The Mortgage Firm - Team Meyers, we answer questions about qualifying all the time. Give us a call at (407) 889-4321.