Ratio of Debt to Income
Your ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly home loan payment after you meet your various other monthly debt payments.
How to figure your qualifying ratio
Most conventional loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying 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 costs (including principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).
The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and credit card payments.
Examples:
A 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 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 Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
Harbor View Lending* a DBA of Megastar Financial can walk you through the pitfalls of getting a mortgage. Give us a call: (207) 571-8034.