Ratio of Debt-to-Income
Your debt to income ratio is a tool lenders use to determine how much money is available for a monthly mortgage payment after all your other recurring debt obligations have been met.
About your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 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 (this includes mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.
Examples:
28/36 (Conventional)
- 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'd like to calculate pre-qualification numbers on your own income and expenses, please use this Loan Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Norcal Capital Group, Inc can walk you through the pitfalls of getting a mortgage. Give us a call at 6507631924.