Ratio of Debt to Income
Your ratio of debt to income is a tool lenders use to calculate how much money can be used for a monthly home loan payment after all your other recurring debts are met.
Understanding your qualifying ratio
Usually, conventional loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
For example:
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'd like 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 go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Sanborn Financial can walk you through the pitfalls of getting a mortgage. Call us at (760) 943-7200.