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Ratio of Debt to Income
Your debt to income ratio is a tool lenders use to determine how much money can be used for a monthly home loan payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
Usually, 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) ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (this includes loan principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, et cetera.
Examples:
28/36 (Conventional)
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Mortgage Loan Pre-Qualifying Calculator.
Remember these are just guidelines. We will be happy to pre-qualify you to help you figure out how much you can afford.
At Billfish Mortgage, we answer questions about qualifying all the time. Call us: 941-584-4098. Ready to begin?
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