Ratio of Debt-to-Income
Your ratio of debt to income is a formula lenders use to calculate how much money can be used for your monthly home loan payment after all your other recurring debts have been met.
How to figure your qualifying ratio
In general, conventional mortgages need 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 how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number in the ratio is what percent of your gross income every month that should be spent on housing costs and recurring debt. Recurring debt includes car payments, child support and monthly credit card payments.
For example:
With a 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Loan Pre-Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be thrilled to help you pre-qualify to help you determine how large a mortgage loan you can afford.
Greystone Loans, Inc. can answer questions about these ratios and many others. Give us a call: 9094671090.