Your ratio of debt to income is a tool lenders use to calculate how much money is available for your monthly home loan payment after you have met your various other monthly debt payments.
Understanding the qualifying ratio
Typically, conventional loans require 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 percentage of gross monthly income that can be spent on housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio 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.
Some example data:
A 28/36 qualifying 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 want to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualification Calculator.
Don't forget these ratios are only guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) can walk you through the pitfalls of getting a mortgage. Call us: 214-300-8756.