Your debt to income ratio is a tool lenders use to calculate how much money is available for a monthly home loan payment after all your other recurring debts have been fulfilled.
About your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
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 homeowners' insurance, homeowners' dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto payments, child support, etcetera.
Some example data:
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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Pre-Qualifying Calculator.
Remember these ratios are just guidelines. We'd be happy to pre-qualify you to help you figure out how large a mortgage you can afford.
At Forum Mortgage Bancorp, we answer questions about qualifying all the time. Give us a call at (773) 774-9040 Ext 121.