Your ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly home loan payment after all your other recurring debt obligations have been fulfilled.
How to figure the qualifying ratio
Most underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, auto payments, child support, and the like.
Some example data:
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, please use this Loan Qualification Calculator.
Remember these are only guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.
Foxfield Financial can answer questions about these ratios and many others. Call us: 720-598-8300.