Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other recurring debts have been fulfilled.
Understanding the qualifying ratio
Most underwriting for conventional mortgages needs 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 is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, and the like.
- 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, use this Loan Qualifying Calculator.
Don't forget these ratios are only guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.
Price Mortgage Group LLC can answer questions about these ratios and many others. Call us: 405-513-7700.