Ratio of Debt-to-Income
Your debt to income ratio is a tool lenders use to calculate how much of your income is available for a monthly home loan payment after you have met your other monthly debt payments.
How to figure your qualifying ratio
Usually, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the full payment.
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes vehicle payments, child support and credit card payments.
Examples:
With a 28/36 qualifying ratio
- 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 want to calculate pre-qualification numbers with your own financial data, please use this Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be thrilled to help you pre-qualify to help you determine how much you can afford.
Riviera Funding NMLS#861382 CA DRE Broker #01186669 can walk you through the pitfalls of getting a mortgage. Give us a call at 3103737406.