Ratio of Debt-to-Income
The debt to income ratio is a formula lenders use to calculate how much money can be used for a monthly home loan payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
Most conventional mortgages need 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 your gross monthly income that can go to housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, auto/boat payments, child support, and the like.
Examples:
28/36 (Conventional)
- 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 run your own numbers, please use this Mortgage Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.
U.S.A. Lending, Inc. can walk you through the pitfalls of getting a mortgage. Give us a call: 305-967-7200.