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Your ratio of debt to income is a formula lenders use to determine how much money can be used for your monthly mortgage payment after all your other monthly debt obligations have been met.
How to figure your qualifying ratio
Typically, conventional 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) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (including principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes vehicle loans, child support and monthly credit card payments.
Some example data:
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualification Calculator.
Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
At Alternative Mortgage Solutions, Inc., we answer questions about qualifying all the time. Call us: 314-835-1195.