Debt to Income Ratio
Your debt to income ratio is simply a way of determining how much money is
available for your monthly
mortgage payment after all your other recurring debt
obligations are met.
Debt limit
There is generally a debt limit associated with each type of loan, such as a
28/36 qualifying ratio for a conventional loan. These qualifying ratios are
guidelines. An excellent credit history can help you qualify for a mortgage loan
even if your debt load is over and above the limit.
Understanding the qualifying ratio
Typically conventional loans have a qualifying ratio of 28/36. Usually an FHA
loan will allow for a higher debt load, reflected in a higher (29/41) qualifying
ratio.
The first number in a qualifying ratio is the maximum percentage of your gross
monthly income that can be applied to housing (including loan principal and
interest, private mortgage insurance, hazard insurance, property taxes and
homeowner's association dues).
The second number is the maximum percentage of your gross monthly income that
can be applied to housing expenses and recurring debt. Recurring debt includes
things like car loans, child support and monthly credit card payments.
For example:
With 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 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
Simply guidelines
Remember these are just guidelines. We’d be happy to pre-qualify you to
determine how large a mortgage loan you can afford. We look forward to helping
you buy your dream home.
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