The ratio of debt to income is a tool lenders use to determine how much of your income is available for your monthly mortgage payment after you meet your other monthly debt payments.
How to figure your qualifying ratio
For the most part, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little 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 (including mortgage principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes auto loans, child support and monthly credit card payments.
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, use this Mortgage Loan Qualification Calculator.
Remember these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.
Abbey Mortgage can answer questions about these ratios and many others. Give us a call at 352-369-4200.