Ratio of Debt-to-Income
The ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after all your other recurring debt obligations have been met.
About your qualifying ratio
In general, underwriting for conventional mortgage loans needs 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.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes payments on credit cards, vehicle loans, child support, and the like.
Examples:
A 28/36 qualifying ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, please use this Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.
At Foxfield Financial, we answer questions about qualifying all the time. Give us a call at 7205988300.