Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly loans.
Understanding the qualifying ratio
Typically, underwriting for conventional mortgages 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.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that makes up the full payment.
The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes payments on credit cards, car payments, child support, etcetera.
Some example data:
A 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 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 Mortgage Qualification Calculator.
Remember these are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage you can afford.
Acceptance Capital Mortgage Corporation can answer questions about these ratios and many others. Give us a call at (337) 453-0012.