Debt-to-Income Ratio
The ratio of debt to income is a tool lenders use to determine how much of your income is available for your monthly home loan payment after you have met your various other monthly debt payments.
Understanding the qualifying ratio
Usually, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
In these ratios, 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, HOA dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes auto loans, child support and credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, we offer a Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to pre-qualify you to determine how much you can afford.
C2 Financial can walk you through the pitfalls of getting a mortgage. Call us at 805-636-9222.