Your debt to income ratio is a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.
There are 2 types of debt ratios. Your mortgage debt ratio and your total debt ratio.
Mortgage Debt Ratio- This is simply the total mortgage payment; principal, interest, property taxes, homeowners insurance and mortgage insurance (if applicable) divided by the total gross income verified monthly.
Total Debt Ratio This means the housing debt described above plus all of the other debts that show up on your credit report divided by the monthly verifiable gross income.
There are guidelines for perfect ratios only. An excellent credit history, job history and more than required in reserve assets, can help you qualify for a mortgage loan even if your debt load is over and above the limit. We work our hardest to get you approved for the loan amount that is your goal. We know which lenders are more flexible with ratios or allow expanded ratios on an exception basis. Currently some of those ratio guidelines have narrowed, but everything depends on the total package presentation. Guidelines for non-government loans are more flexible than with FHA, VA or USDA loans.
With a 28/36 qualifying ratio:Gross monthly income of $3,500 x .28 = $980 can be applied to housing Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 qualifying ratio: Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
Remember these are just guidelines. Recently Fannie Mae has increased the total debt ratio to 50% of your gross monthly income! FHA will sometimes allow a total debt ratio of 55%. The lenders do have absolute limits that they will accept or that Fannie Mae and Freddie Mac will accept for conforming loans. These are expanded with higher credit scores. We’d be happy to pre-approve you to determine how large a mortgage loan you can afford. We look forward to helping you buy your dream home.