Ratio of Debt to Income
The ratio of debt to income is a formula lenders use to determine how much money is available for your monthly mortgage payment after you have met your various other monthly debt payments.
Understanding your qualifying ratio
Typically, underwriting for conventional mortgages needs 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 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, PMI - everything that makes up the full payment.
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 together. Recurring debt includes things like auto loans, child support and credit card payments.
Some example data:
With a 28/36 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 want to calculate pre-qualification numbers on your own income and expenses, please use this Loan Pre-Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We will be thrilled to pre-qualify you to determine how much you can afford.
BeneGroup, Inc. can answer questions about these ratios and many others. Call us at 4083956018.