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Pittsburgh Pennsylvania Home Buyer FAQs...  
What Is My Debt-to-Income Ratio, and How Does It Affect My Loan?



House01.jpgPlain and simple, your debt to income ratio affects your buying power. Your debt to income ratio is a simple way of showing what percentage of your income is available for a mortgage payment after all other continuing obligations are met. The ratio is one of many things a lender considers before approving your home loan.

 

 

You may see conventional loan debt limits referred to as the 28/36 qualifying ratio. Those numbers refer to two percentages that are used to examine two aspects of your debt load.

 

The First Number - 28%…

Indicates the maximum percentage of your monthly gross income that the lender allows for housing expenses. The total includes payments on the loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowner’s association dues. (Often referred to by the acronym PITI.)

 

The Second Number - 36%

Refers to the maximum percentage of your monthly gross income that the lender allows for housing expenses plus recurring debt. Recurring debt includes credit card payments, child support, car loans, and other obligations that will not be paid off within a relatively short period of time (6-10 months).

Debt to Income Ratio Example:

  • Yearly Gross Income = $45,000 / Divided by 12 = $3,750 per month gross income.
  • $3,750 Monthly Income x .28 = $1,050 allowed for housing expense (PITI Payment).
  • $3,750 Monthly Income x .36 = $1,350 allowed for housing expense plus recurring debt.

 

Not All Loans Are The Same.

 

FHA loan ratios are typically 29/41, allowing a higher debt load for both housing and expenses and recurring debt.

  • For the above example, FHA would allow $1,087 for housing and $1,538 for housing expenses plus any recurring debt.
  • For a VA Loan, the debt to income ratio should not exceed 41% of your monthly gross income.

Even though the our published home buyer FAQs answer many of the top questions we've had over the years, there is still no substitute to meeting with a qualified real estate agent and mortgage professional to discuss what is probably the largest financial decision most of us will make in our lifetime. We specialize in helping you obtain a new home with the best possible loan programs and terms available. Simply fill out the form below and we will be happy to discuss what options are available to you!

 

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