Ratio of Debt to Income
Your ratio of debt to income is a formula lenders use to calculate how much money is available for a monthly mortgage payment after you have met your other monthly debt payments.
How to figure the qualifying ratio
Most conventional 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 in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (including mortgage principal and interest, PMI, hazard insurance, property tax, and HOA dues).
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 auto loans, child support and credit card payments.
Examples:
A 28/36 qualifying 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 want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Pre-Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to pre-qualify you to help you determine how much you can afford.
Coastal Mortgage Corp. can walk you through the pitfalls of getting a mortgage. Give us a call at 504-866-5626.