Debt to Income Ratio
Your ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after all your other monthly debt obligations are fulfilled.
How to figure your qualifying ratio
Usually, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, car loans, child support, etcetera.
- 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 want to run your own numbers, feel free to use our Mortgage Qualifying Calculator.
Don't forget these are just guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
At Amity Mortgage LLC, we answer questions about qualifying all the time. Call us at 2037296681.