Debt/Income Ratio
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The ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly home loan payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
For the most part, conventional loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 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 the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, and the like.
Examples:
With a 28/36 ratio
- 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, feel free to use our Mortgage Pre-Qualifying Calculator.
Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford. At Amity Mortgage, we answer questions about qualifying all the time. Call us at (770) 454-9566.