Debt-to-Income Ratio

The debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after all your other recurring debt obligations are fulfilled.

Understanding the qualifying ratio

Typically, underwriting for conventional loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (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 hazard insurance, HOA dues, PMI - everything.

The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, etcetera.

Examples:

A 28/36 ratio

  • 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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Loan Qualification Calculator.

Guidelines Only

Don't forget these are only guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.

MidTowne Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: (478) 746-2063.

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