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 all your other monthly debts have been met.
Understanding the qualifying ratio
Typically, conventional loans need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing costs (including principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
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 credit card payments, auto payments, child support, etcetera.
Some example data:
With a 28/36 ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Loan Qualification Calculator.
Guidelines Only
Remember these are only guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage you can afford.
Bright Vision Mortgage can answer questions about these ratios and many others. Give us a call: 9043423622.