Ratio of Debt-to-Income
The ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after all your other monthly debt obligations have been fulfilled.
About your qualifying ratio
Most 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) qualifying ratio.
For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes auto/boat payments, child support and monthly credit card payments.
- 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'd like to run your own numbers, please use this Loan Pre-Qualifying Calculator.
Don't forget these ratios are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
Americn Hero Mortgage can answer questions about these ratios and many others. Give us a call: 754-202-4376.