Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other monthly debts.
How to figure your qualifying ratio
Typically, conventional mortgages require 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.
For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, etcetera.
Some example data:
A 28/36 qualifying ratio
- 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 calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.
Guidelines Only
Remember these are only guidelines. We will be thrilled to go over pre-qualification to determine how much you can afford.
Amity Mortgage LLC can answer questions about these ratios and many others. Give us a call: 2037296681.