Ratio of Debt-to-Income
The debt to income ratio is a formula lenders use to calculate how much money is available for your monthly mortgage payment after all your other recurring debts have been fulfilled.
How to figure the qualifying ratio
For the most part, conventional mortgage 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) 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 costs (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, etcetera.
Some example data:
- 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 with your own financial data, feel free to use our superb Mortgage Loan Qualification Calculator.
Don't forget these ratios are only guidelines. We'd be thrilled to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
Amity Mortgage LLC can walk you through the pitfalls of getting a mortgage. Give us a call: 2037296681.