Ratio of Debt-to-Income
The debt to income ratio is a tool lenders use to determine how much of your income is available for your monthly mortgage payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
In general, underwriting for conventional mortgage loans requires 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 gross monthly income that can go to housing costs (this includes principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Some example data:
A 28/36 qualifying ratio
- 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 run your own numbers, we offer a Loan Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be happy to help you pre-qualify to determine how large a mortgage you can afford.
AmeriBest Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 3217777277.