Ratio of Debt-to-Income
Your ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after you have met your other monthly debt payments.
About your qualifying ratio
For the most part, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing costs (including principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.
Some example data:
A 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our Mortgage Pre-Qualifying Calculator.
Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Alternative Mortgage Group can walk you through the pitfalls of getting a mortgage. Give us a call: 561-395-4264.