Ratio of Debt-to-Income
Your ratio of debt to income is a tool lenders use to calculate how much of your income can be used for your monthly home loan payment after you meet your other monthly debt payments.
Understanding your qualifying ratio
Usually, conventional mortgages require 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 go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, and the like.
Some example data:
28/36 (Conventional)
- 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 run your own numbers, feel free to use our Mortgage Qualifying Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
Firelight Mortgage Consultants can walk you through the pitfalls of getting a mortgage. Give us a call: 7209331025.