Debt/Income Ratio
Your ratio of debt to income is a formula lenders use to determine how much money is available for your monthly home loan payment after all your other recurring debt obligations are fulfilled.
About the qualifying ratio
In general, conventional loans need 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 go to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. Recurring debt includes things like car payments, child support and credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, use this Loan Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
Yamini Patel can answer questions about these ratios and many others. Call us: (832) 730-2000.