Ratio of Debt to Income
Your debt to income ratio is a tool lenders use to determine how much money is available for your monthly mortgage payment after you meet your various other monthly debt payments.
About your qualifying ratio
For the most part, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (including mortgage principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).
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 credit card payments, car payments, child support, and the like.
Some example data:
A 28/36 qualifying ratio
- 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'd like to calculate pre-qualification numbers with your own financial data, use this Mortgage Qualifying Calculator.
Remember these are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.
Atlantic Financial Services can walk you through the pitfalls of getting a mortgage. Give us a call: (732) 969-9300.