Ratio of Debt to Income
Your ratio of debt to income is a formula lenders use to calculate how much money can be used for your monthly home loan payment after all your other monthly debt obligations have been fulfilled.
About your qualifying ratio
Usually, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For these ratios, 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, homeowners' dues, PMI - everything.
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, auto/boat payments, child support, etcetera.
Examples:
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 Mortgage Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.
America's Money Source can walk you through the pitfalls of getting a mortgage. Call us: 4078987559.