Ratio of Debt to Income
The ratio of debt to income is a tool lenders use to calculate how much money is available for your monthly home loan payment after all your other monthly debts are fulfilled.
Understanding your qualifying ratio
Most conventional loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing (including loan principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. Recurring debt includes auto loans, child support and monthly credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Mortgage Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.
American Mortgage Advisers, Inc can answer questions about these ratios and many others. Give us a call at 2147390569.