Ratio of Debt to Income
Your ratio of debt to income is a tool lenders use to calculate how much money can be used for your monthly home loan payment after all your other recurring debt obligations are fulfilled.
How to figure the qualifying ratio
Typically, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- 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.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
Foxfield Financial can answer questions about these ratios and many others. Call us: 7205988300.