Debt to Income Ratio
The debt to income ratio is a tool lenders use to determine how much money can be used for your monthly home loan payment after you have met your other monthly debt payments.
About the qualifying ratio
For the most part, conventional mortgage loans need 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 be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes car payments, child support and credit card payments.
Examples:
A 28/36 ratio
- 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 calculate pre-qualification numbers with your own financial data, use this Mortgage Pre-Qualification Calculator.
Just Guidelines
Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage 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 at (207) 571-8034.