Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts have been paid.
Understanding the qualifying ratio
Typically, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes things like auto loans, child support and credit card payments.
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 run your own numbers, feel free to use our Loan Qualifying Calculator.
Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to determine how large a mortgage you can afford.
F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) can answer questions about these ratios and many others. Call us at 214-300-8756.