Ratio of Debt-to-Income
The ratio of debt to income is a tool lenders use to calculate how much of your income is available for your monthly home loan payment after you meet your other monthly debt payments.
Understanding your qualifying ratio
Most conventional loans require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, auto/boat loans, 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'd like to run your own numbers, please use this Mortgage Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
ADVISORY MORTGAGE can walk you through the pitfalls of getting a mortgage. Give us a call at 8102292820.