Debt-to-Income Ratio Mortgage Calculator
Use our Debt-to-Income Ratio Mortgage Calculator to determine what size mortgage you qualify for based on your gross income, debt expense and debt-to-income ratio. This calculator enables borrowers to understand how lenders view your financial profile when you apply for a mortgage. Lenders apply a ratio of your debt expenses -- your mortgage payment, property tax and hazard insurance plus payments for credit card, auto and student loans -- to your monthly gross income to determine the loan you qualify for.
Lenders only permit you to spend so much of your gross income on monthly debt payments, including your mortgage, and our calculator shows you the home loan amount you can afford using this ratio. Given how a debt-to-income ratio is calculated, the lower your non-housing related debt expenses, the more money you can spend on your mortgage and the higher the loan amount you qualify for. This is why it can be helpful to pay off or pay down your debt balances before you apply for a home loan. Our calculator also factors in your estimated property tax and homeowners insurance expenses which are included in the debt figure when lenders calculate your debt-to-income ratio.
This calculator includes other inputs that impact the loan you qualify for including your interest rate, mortgage term, loan type and if you are required to pay monthly co-op or HOA fees. Co-op and HOA fees are also considered debt payments which means they reduce how much you can spend on your mortgage and what size loan you can afford. We recommend that you use our Debt-to-Income Ratio Calculator to see how the debt-to-income ratio produces different results for estimated loan amount, mortgage payment and total monthly housing expense based on different scenarios. We also offer a version of this calculator that does not require personal information.
Monthly Housing Payments
- Loan Type
How Lenders Qualify You for a Mortgage
Borrower Debt-to-Income Ratio
Lenders use your debt-to-income ratio to determine what size mortgage you qualify for. Your debt-to-income ratio represents the maximum amount of your monthly gross income that you can spend on total monthly housing expense (mortgage payment plus property tax, homeowners insurance and other applicable housing expenses) plus monthly debt payments such as car, student and credit card loans. Lenders usually use a maximum borrower debt-to-income ratio of 43% to 50% to determine what size mortgage you qualify for, although some lenders and mortgage programs apply higher or lower ratios. Borrowers with lower monthly debt payments can afford to spend more on their mortgage payment which enables them to qualify for a larger mortgage. On the other hand, borrowers with high monthly debt payments may find it challenging to qualify for a mortgage even if they have a high credit score and earn a decent monthly income. Borrowers looking to maximize their mortgage amount should pay down their debt to improve their debt-to-income ratio before they apply for a mortgage Use our Debt-to-Income Ratio Mortgage Calculator to understand how changes in your monthly debt expense impact how much mortgage you qualify for.
Ability to Repay the Loan
In addition to applying a maximum debt-to-income ratio, lenders are also required to demonstrate that borrowers have the ability to repay the loan according to specific government guidelines. In short, lenders determine if a loan is a Qualified Mortgage (QM) according to the guidelines, which means the borrower can afford and payback the mortgage. The guidelines also address lender fees, maximum mortgage length and prohibit loan features such as balloon payments and negative amortization -- when your mortgage balance can increase over the life of the loan. Interest only mortgages are also not permitted according to the Qualified Mortgage guidelines. It is important to highlight that some lenders offer mortgages that do not satisfy the Qualified Mortgage guidelines. These mortgages, however, usually require borrowers to pay a higher mortgage rate or impose stricter qualification requirements.
Borrower Credit Score
Lenders review your credit score and pull your credit report when you apply for a mortgage. Lenders typically require that borrowers have a minimum credit score of 620 although certain mortgage programs permit lower scores. Your credit score is also one of the inputs that lenders use to determine your mortgage rate, with the higher your score, the lower your interest rate. Lenders review your credit report to determine if you have experienced any adverse credit events in the past such as a bankruptcy, short sale or foreclosure. If you have experienced an adverse credit event, lenders require you to wait a certain period of time before applying for a mortgage. FREEandCLEAR recommends that borrowers review their credit score and credit report six-to-twelve months prior to applying for a mortgage to resolve any issues in your credit profile.
Borrower Employment History
Unless you are a recent college graduate, lenders typically require that borrowers have two years of continuous employment history before you apply for a mortgage. Borrowers with a break in their employment may be required to provide a written explanation for the gap although if you have extensive work experience in the same field the gap may be less of an issue. Additionally, if you have changed jobs recently and your new job has an initial probation period the lender may wait until the end of the probation period before approving you for a mortgage. Lenders usually call your employer prior to your mortgage closing to verify your employment and make sure you are still working at the job you listed on your mortgage application. It is important to highlight that military service and full-time school such as college also usually count as work history so you may not need a full two-year employment history if you recently graduated from college or served in the armed forces.
Many lenders also consider your residence history when you apply for a mortgage. Lenders want to understand where you have lived over the past several years so that they can confirm that you have made your mortgage or rent payments on time. They may also want to understand the total monthly housing expense for your past residences so they can compare that to the mortgage payment, property tax and insurance for the home you want to buy. If your mortgage payment and housing expense are expected to increase significantly compared to what you paid in the past the lender wants to make sure that your make enough money to afford the higher payment.
Mortgage Qualification Guidelines Vary By Lender
It is important for borrowers to understand that mortgage qualification guidelines can vary by lender. While most lenders use a similar set of qualification requirements, they have some discretion in developing and applying these requirements. This is another reason why you should always contact multiple lenders when you shop for a mortgage. Lenders may use different borrower qualification requirements which means one lender may decline your loan application while another lender approves it. Although all lenders apply minimum borrower qualification standards, borrowers may need to apply to multiple lenders before being approved for their mortgage. Our calculator uses an industry standard debt-to-income ratio to determine your loan amount and monthly payment but we encourage borrowers to contact several lenders to confirm what size loan they can afford.
More FREEandCLEAR Mortgage Resources
Understand how lenders apply debt-to-income ratios to determine what size mortgage you qualify for and how you can improve your debt-to-income ratio before you apply for a mortgage
Compare mortgage rates and fees from top lenders near you. Comparing proposals from multiple lenders is the best way to find the mortgage that is right for you
Got mortgage questions? We love answering them. Submit your mortgage questions and receive an informative response within 24 hours
Review our comprehensive overview of mortgage qualification requirements before you apply for a mortgage
There are different types of lenders including large national banks, regional and local banks, mortgage banks, credit unions, mortgage brokers and hard money lenders. Borrowers benefit from understanding their mortgage lender options and by contact different types of lenders when they shop for a mortgage
Debt-to-income Ratio Guideline: https://www.fanniemae.com/content/guide/selling/b3/6/02.html