Ratio of Debt-to-Income
Your ratio of debt to income is a formula lenders use to determine how much money is available for a monthly mortgage payment after you have met your various other monthly debt payments.
Understanding your qualifying ratio
Typically, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our very useful Mortgage Pre-Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.
1st Credential Mortgage Inc can walk you through the pitfalls of getting a mortgage. Give us a call at 2817780805.