Ratio of Debt-to-Income
Your ratio of debt to income is a tool lenders use to determine how much of your income can be used for a monthly mortgage payment after you have met your various other monthly debt payments.
About the qualifying ratio
In general, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. Recurring debt includes credit card payments, vehicle payments, child support, etcetera.
Examples:
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 want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Mortgage Qualifying Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be happy to help you pre-qualify to help you figure out how large a mortgage you can afford.
Executive Lending Group, LLC can walk you through the pitfalls of getting a mortgage. Call us at (816) 525-8000 & (81.