Ratio of Debt-to-Income
Your debt to income ratio is a formula lenders use to calculate how much of your income is available for your monthly mortgage payment after all your other monthly debt obligations are met.
Understanding the qualifying ratio
Most underwriting for conventional loans needs 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 the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, etcetera.
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 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 Mortgage Qualifying Calculator.
Don't forget these are only guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
Crown Mortgage can answer questions about these ratios and many others. Give us a call at (434) 975-5626.
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