Ratio of Debt-to-Income
The debt to income ratio is a formula lenders use to determine how much money is available for a monthly mortgage payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
Usually, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are a little less strict, 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 costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the full payment.
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes things like vehicle loans, child support and credit card payments.
- 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 calculate pre-qualification numbers with your own financial data, we offer a Loan Pre-Qualifying Calculator.
Don't forget these are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
At Hawk Mortgage Group, we answer questions about qualifying all the time. Call us at (443) 619-7900.