Ratio of Debt-to-Income
Your ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly home loan payment after all your other monthly debts are fulfilled.
How to figure your qualifying ratio
Most underwriting for conventional loans needs 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 the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt. Recurring debt includes things like car payments, child support and credit card payments.
For example:
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 with your own financial data, feel free to use our superb Loan Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
At Custom Lending Group, we answer questions about qualifying all the time. Give us a call at 7072522700.