Ratio of Debt to Income
The debt to income ratio is a tool lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other recurring debt obligations are met.
How to figure the qualifying ratio
Most conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, car payments, child support, and the like.
With a 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Mortgage Qualifying Calculator.
Don't forget these are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.
At Cal Coast Financial Corp, we answer questions about qualifying all the time. Give us a call: (510) 683-9850.
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