Ratio of Debt-to-Income
The ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly home loan payment after all your other recurring debt obligations are met.
About your qualifying ratio
Most underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 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 (including principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes things like vehicle loans, child support and credit card payments.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our Loan Qualifying Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to determine how much you can afford.
At Augusta Mortgage Solutions, we answer questions about qualifying all the time. Call us at 7068605514.