Ratio of Debt-to-Income

/Ratio of Debt-to-Income
Ratio of Debt-to-Income 2016-12-22T11:41:28+00:00
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Your ratio of debt to income is a formula lenders use to calculate how much of your income can be used for a monthly mortgage payment after you meet your other monthly debt payments.

Understanding your qualifying ratio

In general, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, PMI, hazard insurance, taxes, and homeowners’ association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car 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 run your own numbers, feel free to use our superb Mortgage Pre-Qualification Calculator.

Remember these are only guidelines. We’d be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford. Platte River Mortgage & Investments, Inc can walk you through the pitfalls of getting a mortgage. Call us at (303) 433-9900.
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