The ratio of debt to income is a formula lenders use to determine how much of your income is available for a monthly home loan payment after all your other recurring debt obligations have been fulfilled.
Understanding your qualifying ratio
Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing (including mortgage principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes things like auto loans, child support and monthly credit card payments.
Some example data:
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Loan Pre-Qualification Calculator.
Remember these are just guidelines. We will be happy to pre-qualify you to determine how much you can afford.
Amity Mortgage LLC can walk you through the pitfalls of getting a mortgage. Give us a call: (203) 729-6681.