Ratio of Debt to Income
Your debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other recurring debts are fulfilled.
About your qualifying ratio
In general, underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
For these ratios, the first number is the percentage 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 that makes up the full payment.
The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt together. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Some example data:
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 on your own income and expenses, we offer a Mortgage Qualifying Calculator.
Remember these are just guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.
Alternative Mortgage Group can answer questions about these ratios and many others. Give us a call at 561-395-4264.