Debt-to-Income Ratio
Your debt to income ratio is a tool lenders use to determine how much money is available for a monthly mortgage payment after you have met your other monthly debt payments.
About your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can go toward housing. 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 applied to housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.
Examples:
With a 28/36 qualifying 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, we offer a Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We will be happy to pre-qualify you to help you figure out how large a mortgage loan you can afford.
New Millennium Mortgage Co. NMLS: 331173 can answer questions about these ratios and many others. Give us a call at (941) 366-5800.