Your ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after you meet your other monthly debt payments.
Understanding the qualifying ratio
Typically, underwriting for conventional mortgages 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 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, PMI - everything that makes up the full payment.
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, etcetera.
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our superb Mortgage Qualification Calculator.
Don't forget these ratios are just guidelines. We'd be happy to help you pre-qualify to determine how much you can afford.
Augusta Mortgage Solutions can walk you through the pitfalls of getting a mortgage. Call us: 7068605514.