Ratio of Debt to Income
The debt to income ratio is a tool lenders use to determine how much money is available for a monthly home loan payment after all your other recurring debts are fulfilled.
How to figure your qualifying ratio
In general, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.
Some example data:
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 with your own financial data, we offer a Loan Qualification Calculator.
Guidelines Only
Remember these are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
Family Mortgage Company of Hawaii, Inc. NMLS #244497 can answer questions about these ratios and many others. Give us a call at (808) 935-0678.