Ratio of Debt-to-Income
The debt to income ratio is a tool lenders use to determine how much of your income can be used for your monthly mortgage payment after all your other monthly debts have been fulfilled.
How to figure your qualifying ratio
For the most part, underwriting for conventional mortgage 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) 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 (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).
The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes payments on credit cards, auto loans, child support, etcetera.
Some example data:
28/36 (Conventional)
- 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'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Loan Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to help you figure out how large a mortgage loan you can afford.
Wize Mortgage LLC can answer questions about these ratios and many others. Call us at .