Ratio of Debt-to-Income
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 all your other recurring debt obligations have been fulfilled.
About your qualifying ratio
In general, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing (including principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. Recurring debt includes credit card payments, auto/boat payments, 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 want to run your own numbers, feel free to use our very useful Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Riviera Funding NMLS#861382 CA DRE Broker #01186669 can answer questions about these ratios and many others. Give us a call at 3103737406.