Your debt to income ratio is a tool lenders use to determine how much money is available for your monthly home loan payment after all your other recurring debt obligations have been fulfilled.
How to figure your qualifying ratio
Most conventional loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes payments on credit cards, vehicle payments, child support, and the like.
Some example data:
A 28/36 qualifying ratio
- 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 want to run your own numbers, feel free to use our very useful Mortgage Loan Qualification Calculator.
Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.
Ward Kilduff Mortgage can walk you through the pitfalls of getting a mortgage. Call us at (860) 658-7100.
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