Debt/Income Ratio
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The debt to income ratio is a tool lenders use to determine how much of your income is available for your monthly mortgage payment after you have met your various other monthly debt payments.
About the qualifying ratio
Most underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes things like auto payments, child support and monthly credit card payments.
Some example data:
With a 28/36 qualifying ratio
- 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.
Remember these ratios are only guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford. Riviera Funding can walk you through the pitfalls of getting a mortgage. Give us a call at (310) 373-7406.