Debt to Income Ratio
Your debt to income ratio is a tool lenders use to calculate how much money is available for your monthly home loan payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
In general, underwriting for conventional mortgages needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes things like vehicle payments, child support and credit card payments.
For example:
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'd like to run your own numbers, we offer a Mortgage Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We'd be happy to help you pre-qualify to determine how large a mortgage loan 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.