Ratio of Debt-to-Income
The ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after you have met your various other monthly debt payments.
About the qualifying ratio
In general, conventional mortgage loans 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.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the full payment.
The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, and the like.
For example:
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, feel free to use our superb Loan Qualification Calculator.
Guidelines Only
Remember these are just guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.
CHASE MORTGAGE, Inc. #317430 can answer questions about these ratios and many others. Call us at 4357556622.