Ratio of Debt-to-Income
Your debt to income ratio is a tool lenders use to calculate how much of your income can be used for your monthly home loan payment after all your other recurring debts are met.
Understanding the qualifying ratio
For the most part, conventional loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (this includes loan principal and interest, PMI, homeowner's insurance, taxes, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like auto loans, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our superb Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.
Triumph Mortgage Inc can answer questions about these ratios and many others. Give us a call at 8327302000.