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 home loan payment after you meet your various other monthly debt payments.
Understanding your 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 gross monthly income that can be spent on housing (this includes mortgage principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- 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, feel free to use our very useful Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.
Chattahoochee Residential Mortgage, LLC can walk you through the pitfalls of getting a mortgage. Give us a call: 4702755627.