Ratio of Debt-to-Income
Your debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly home loan payment after you have met your various other monthly debt payments.
Understanding your qualifying ratio
Most underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, car payments, child support, and the like.
Examples:
A 28/36 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'd like to run your own numbers, use this Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be thrilled to go over pre-qualification to determine how large a mortgage you can afford.
CHASE MORTGAGE, Inc. #317430 can walk you through the pitfalls of getting a mortgage. Call us at 4357556622.