Ratio of Debt to Income

Your debt to income ratio is a tool lenders use to determine how much money is available for your monthly home loan payment after all your other recurring debts are fulfilled.

Understanding the qualifying ratio

In general, conventional mortgages need 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 be spent on housing costs (including principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).

The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt together. Recurring debt includes things like auto payments, child support and monthly credit card payments.

For example:

A 28/36 qualifying ratio

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Pre-Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.

New Millennium Mortgage Co. NMLS: 331173 can answer questions about these ratios and many others. Call us at (941) 366-5800.

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