Debt to Income Ratio
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Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
About your qualifying ratio
Most underwriting for conventional mortgage loans requires 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 amount (as a percentage) of your gross monthly income that can go to housing costs (this includes principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes things like auto loans, child support and credit card payments.
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 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 Loan Pre-Qualifying Calculator.
Remember these ratios are only guidelines. We'd be happy to pre-qualify you to determine how much you can afford. At Dream Home Funding, we answer questions about qualifying all the time. Give us a call at (325) 651-2100.