Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts are paid.
Understanding your qualifying ratio
Typically, underwriting for conventional loans requires 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 go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes things like vehicle loans, child support and credit card payments.
Examples:
A 28/36 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'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We'd be thrilled to help you pre-qualify 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. Call us: (941) 366-5800.