Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.
Understanding the qualifying ratio
Most underwriting for conventional mortgage loans needs 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 costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes 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 together. Recurring debt includes car loans, child support and credit card payments.
Some example data:
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 on your own income and expenses, use this Mortgage Pre-Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.
One Source Lending can answer questions about these ratios and many others. Give us a call: 3032207500.