Ratio of Debt to Income
The debt to income ratio is a tool lenders use to determine how much money can be used for your monthly mortgage payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
Typically, conventional mortgage loans 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (including principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes things like auto loans, child support and credit card payments.
Some example data:
With a 28/36 qualifying 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 want to run your own numbers, we offer a Loan Pre-Qualification Calculator.
Don't forget these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you figure out how much you can afford.
At Bob Rutledge Mortgage, we answer questions about qualifying all the time. Call us at 3149139678.