The ratio of debt to income is a tool lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other monthly debts are met.
How to figure your qualifying ratio
Typically, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less strict, 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, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, and the like.
Some example data:
A 28/36 qualifying ratio
- 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'd like to run your own numbers, we offer a Mortgage Loan Qualifying Calculator.
Don't forget these are only guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.
Hawk Mortgage Group can answer questions about these ratios and many others. Give us a call at (443) 619-7900.