Ratio of Debt to Income
The ratio of debt to income is a formula 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
For the most part, conventional mortgages 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.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (including mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
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 calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
Financial Edge Mortgage Corp. can walk you through the pitfalls of getting a mortgage. Call us at 425-508-9988.