Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts are paid.
About the qualifying ratio
Usually, conventional loans need 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.
The first number is the percentage 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, PMI - everything.
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.
Examples:
28/36 (Conventional)
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our very useful Mortgage Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Amity Mortgage LLC can answer questions about these ratios and many others. Call us: (203) 729-6681.