Ratio of Debt to Income
The debt to income ratio is a tool lenders use to calculate how much money is available for your monthly mortgage payment after you have met your other monthly debt payments.
Understanding your qualifying ratio
Typically, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
For these ratios, 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 homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto loans, child support, etcetera.
A 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Mortgage Loan Qualification Calculator.
Don't forget these are only guidelines. We will be happy to pre-qualify you 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: 2037296681.