When it comes to qualifying for a home mortgage loan, there are many factors that come into play. One of these factors is debt to income ratio (this also has an effect on your credit score, which also affects your qualification). Debt to income ratio is how much debt you have in comparison to your income. It is the percentage of your income that goes to pay of debt. A simple example:

If your income is $48,000 per year, your monthly income is $4,000. If your debt payments amount to $950 per month, your income to debt ratio is 23.75%.

When looking at your situation, many lenders will look at to ratio numbers. The first is your housing expenses. If you want a conventional loan with the best interest rate, your housing expenses should not exceed 28% of your income. The total of your monthly gross income that should go for housing plus regular debt is 36%. This is known as a 28/36 qualifying ratio.

Some loans, however, allow higher debt to income ratio numbers, and higher housing numbers. However, you will pay for this with a higher interest rate. These are known as subprime loans. However, the numbers allowed for these loans is not as high as it used to be, since subprime loans are also tightening their lending standards in the wake of the recent crash.

Before you try to get qualified for a home mortgage loan, try to reduce some of your recurring monthly debt payments. This usually occurs in the form of credit cards, and you should try to pay down some balances before applying for a home mortgage loan.

Tags: mortgage loan, personal finance, financial planning, finances,
financial goals, mortgage loan financing, debt to income ratio, 28/36 qualifying ratio