Ratio of Debt-to-Income
The ratio of debt to income is a tool lenders use to calculate how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.
About the qualifying ratio
Most conventional loans need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes payments on credit cards, vehicle payments, child support, etcetera.
Examples:
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 calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Pre-Qualifying Calculator.
Just Guidelines
Remember these are only guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
At Ruidoso Mortgage, we answer questions about qualifying all the time. Call us: 5752581316.