Debt to Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
Understanding your qualifying ratio
Typically, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the full payment.
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto loans, child support, etcetera.
Examples:
28/36 (Conventional)
- 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 run your own numbers, feel free to use our very useful Loan Pre-Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.
Triumph Mortgage Inc can answer questions about these ratios and many others. Call us: 8327302000.