Ratio of Debt to Income
Your ratio of debt to income is a tool lenders use to determine how much money can be used for your monthly mortgage payment after you meet your other monthly debt payments.
Understanding the qualifying ratio
For the most part, 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) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing (this includes principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, car payments, child support, etcetera.
Examples:
A 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
Executive Lending Group, LLC can walk you through the pitfalls of getting a mortgage. Give us a call at 8165258000.