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 mortgage payment after you have met your various other monthly debt payments.
About the qualifying ratio
Most conventional loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
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 homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto/boat payments, child support, etcetera.
Examples:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our Mortgage Pre-Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.
ADVISORY MORTGAGE can walk you through the pitfalls of getting a mortgage. Give us a call: 8102292820.