Ratio of Debt-to-Income
Your ratio of debt to income is a tool lenders use to calculate how much money can be used for your monthly mortgage payment after all your other monthly debt obligations are met.
How to figure the qualifying ratio
Usually, conventional mortgage loans need 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 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, HOA dues, PMI - everything that constitutes the full payment.
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes credit card payments, vehicle loans, child support, and the like.
Examples:
28/36 (Conventional)
- 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 want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these are just guidelines. We will be happy to pre-qualify you to determine how much you can afford.
Farm Credit of the Virginias can walk you through the pitfalls of getting a mortgage. Call us: (800) 919-3276.