Ratio of Debt-to-Income
The debt to income ratio is a formula lenders use to determine how much of your income can be used for your monthly home loan payment after all your other monthly debts have been met.
Understanding your qualifying ratio
In general, underwriting for conventional mortgage 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) qualifying ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, and the like.
Some example data:
- 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 run your own numbers, we offer a Mortgage Qualification Calculator.
Don't forget these ratios 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.
Ward Kilduff Mortgage can walk you through the pitfalls of getting a mortgage. Call us at (860) 658-7100.
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