The ratio of debt to income is a formula lenders use to calculate how much money is available for your monthly mortgage payment after all your other monthly debts are fulfilled.
How to figure the qualifying ratio
Usually, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 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, homeowners' dues, PMI - everything.
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes car payments, child support and monthly credit card payments.
- 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 want to run your own numbers, feel free to use our superb Mortgage Pre-Qualifying Calculator.
Don't forget these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.
At Alerus Mortgage, we answer questions about qualifying all the time. Call us at 952 417 8481.