Ratio of Debt-to-Income
The ratio of debt to income is a formula lenders use to calculate how much of your income is available for your monthly mortgage payment after all your other recurring debt obligations are fulfilled.
About your qualifying ratio
In general, conventional mortgage loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the full payment.
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, etcetera.
For example:
A 28/36 ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We will be happy to help you pre-qualify to determine how much you can afford.
America's Money Source can walk you through the pitfalls of getting a mortgage. Call us at 4078987559.