Ratio of Debt to Income
Your ratio of debt to income is a tool lenders use to calculate how much of your income can be used for a monthly mortgage payment after all your other recurring debt obligations are met.
How to figure your qualifying ratio
Most conventional mortgages require 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.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes auto/boat loans, child support and credit card payments.
Some example data:
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Pre-Qualifying Calculator.
Remember these ratios are just guidelines. We will be happy to pre-qualify you to determine how large a mortgage you can afford.
Augusta Mortgage Solutions can answer questions about these ratios and many others. Give us a call: 706-860-5514.