Ratio of Debt-to-Income
The debt to income ratio is a formula lenders use to determine how much money can be used for a monthly mortgage payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
Most conventional mortgage loans require 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 be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, car loans, child support, and the like.
Some example data:
- 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 want to run your own numbers, use this Mortgage Qualifying Calculator.
Don't forget these ratios are only guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
Augusta Mortgage Solutions can walk you through the pitfalls of getting a mortgage. Call us: 7068605514.