Ratio of Debt-to-Income
Your ratio of debt to income is a formula lenders use to determine how much money can be used for your monthly mortgage payment after all your other monthly debts have been met.
Understanding the qualifying ratio
Typically, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, etcetera.
Some example data:
28/36 (Conventional)
- 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, feel free to use our superb Loan Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.
Wires of Energy can walk you through the pitfalls of getting a mortgage. Give us a call at 4058873713.