Ratio of Debt-to-Income
Your debt to income ratio is a tool lenders use to calculate how much money is available for your monthly home loan payment after you have met your various other monthly debt payments.
Understanding the qualifying ratio
For the most part, conventional mortgage loans need 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 how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, vehicle loans, child support, and the like.
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 want to calculate pre-qualification numbers with your own financial data, use this Mortgage Qualification Calculator.
Don't forget these are just guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage you can afford.
Greystone Loans, Inc. can walk you through the pitfalls of getting a mortgage. Call us at 9094671090.