Debt/Income Ratio
Your debt to income ratio is a formula lenders use to calculate how much money is available for your monthly home loan payment after all your other monthly debt obligations are fulfilled.
Understanding the qualifying ratio
Typically, underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (including mortgage principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. Recurring debt includes auto/boat payments, child support and monthly credit card payments.
Examples:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Loan Qualifying Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We will be thrilled to help you pre-qualify to help you determine how large a mortgage you can afford.
Family Mortgage Company of Hawaii, Inc. NMLS #244497 can walk you through the pitfalls of getting a mortgage. Give us a call at (808) 935-0678.