Ratio of Debt-to-Income
The ratio of debt to income is a tool lenders use to calculate how much of your income is available for a monthly mortgage payment after you have met your various other monthly debt payments.
Understanding your qualifying ratio
Usually, 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) 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 hazard insurance, homeowners' dues, PMI - everything.
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car payments, child support, etcetera.
Some example data:
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 run your own numbers, use this Mortgage Loan Qualifying Calculator.
Guidelines Only
Remember these are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
VSI Home Lending can walk you through the pitfalls of getting a mortgage. Call us: 2603382561.