Ratio of Debt to Income
The ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after all your other monthly debt obligations are fulfilled.
About the qualifying ratio
In general, conventional mortgages require 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 in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing costs (including loan principal and interest, PMI, hazard insurance, property tax, and HOA dues).
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. Recurring debt includes credit card payments, auto payments, child support, and the like.
With a 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Mortgage Loan Qualification Calculator.
Don't forget these ratios are only guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
Ward Kilduff Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at (860) 658-7100.
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