Ratio of Debt-to-Income
The ratio of debt to income is a tool lenders use to determine how much of your income can be used for your monthly home loan payment after all your other monthly debts have been fulfilled.
Understanding the qualifying ratio
In general, 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.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
- 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'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.
Remember these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
At Valley Savers Mortgage, LLC, we answer questions about qualifying all the time. Call us: (602) 332-9544.
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