Ratio of Debt-to-Income

The ratio of debt to income is a tool lenders use to determine how much of your income is available for your monthly home loan payment after all your other recurring debt obligations are met.

Understanding the qualifying ratio

In general, underwriting for conventional loans requires 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.

For these ratios, 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, homeowners' dues, Private Mortgage Insurance - everything that constitutes the payment.

The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, and the like.

Examples:

With a 28/36 qualifying ratio

• Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
• Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
• Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, we offer a Mortgage Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.

Bob Rutledge Mortgage can answer questions about these ratios and many others. Call us at 3149139678.