Debt to Income Ratio
Your debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other monthly debts are met.
About your qualifying ratio
Typically, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes credit card payments, car payments, child support, etcetera.
Examples:
With a 28/36 ratio
- 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 want to run your own numbers, please use this Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.
At Affirm Home Loans, we answer questions about qualifying all the time. Call us at (972) 292-0448.