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 your monthly mortgage payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
Usually, 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) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing costs (including loan principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, car loans, child support, and the like.
For example:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.
At Augusta Mortgage Solutions, we answer questions about qualifying all the time. Call us at 7068605514.