Ratio of Debt-to-Income
Your debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after all your other monthly debts are fulfilled.
About the qualifying ratio
For the most part, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little 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 costs (this includes loan principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt together. Recurring debt includes auto payments, child support and monthly credit card payments.
For example:
With a 28/36 ratio
- 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, use this Mortgage Loan Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be happy to help you pre-qualify to determine how large a mortgage loan you can afford.
Augusta Mortgage Solutions can walk you through the pitfalls of getting a mortgage. Call us: 7068605514.