Ratio of Debt-to-Income
The ratio of debt to income is a formula lenders use to calculate how much of your income is available for your monthly mortgage payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
Most conventional mortgages require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes auto/boat payments, child support and credit card payments.
Examples:
With a 28/36 ratio
- 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 want to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Loan Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be happy to help you pre-qualify to help you determine how much you can afford.
Price Mortgage Group LLC can walk you through the pitfalls of getting a mortgage. Give us a call: 405-513-7700.