Ratio of Debt-to-Income
The debt to income ratio is a tool lenders use to calculate how much money is available for a monthly mortgage payment after you meet your other monthly debt payments.
About the 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 is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes car payments, child support and credit card payments.
For example:
With a 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 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 Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be happy to go over pre-qualification to determine how large a mortgage you can afford.
At Augusta Mortgage Solutions, we answer questions about qualifying all the time. Give us a call at 7068605514.