Ratio of Debt-to-Income
The 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 you have met your other monthly debt payments.
Understanding the qualifying ratio
Usually, 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 is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and credit card payments.
Some example data:
28/36 (Conventional)
- 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, feel free to use our Mortgage Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
At Sky Apply Mortgage, Inc, we answer questions about qualifying all the time. Give us a call at 8132007931.