Ratio of Debt to Income
The ratio of debt to income is a formula lenders use to determine how much of your income is available for your monthly home loan payment after you meet your other monthly debt payments.
Understanding the qualifying ratio
Usually, conventional mortgages 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 how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes things like auto payments, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
Americn Hero Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 754-202-4376.