Income and Debt Ratios                                                                             

Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.

There is a debt limit associated with every loan, such as a 28/36 qualifying ratio for a conventional mortgage. These ratios inform the lender if you can afford to pay the mortgage payment every month. An excellent credit score can help you qualify for a mortgage loan even if your debt load is over the limit.

Understanding the qualifying ratio

Typically conventional loans have a qualifying ratio of 28/36. Usually an FHA loan will allow for a slightly higher debt load, reflected in a higher (29/41) qualifying ratio.

The top number in the ratio is the Payment-to-Income. It is calculated by dividing the total monthly primary residence payment (PITI*) by the total gross monthly income.

 

Primary Residence Monthly Payment (PITI*)	$
Total Income                                                   ÷	$
Payment-to-Income Ratio                                                      =	%

The bottom number is the Debt-to-Income ratio.  This is calculated by dividing the total monthly debt payments by the total gross monthly income.  **Total monthly debt includes things like car loans, total housing payment (PITI), child support and credit card debt.

Total Liabilities**	$
Total Income                                       ÷	$
Debt-to-Income Ratio                           =	%

Simply guidelines

We’d be happy to pre-qualify you to determine how much of a house you can afford.  We look forward to helping you buy your dream home.

*PITI = Principle,Interest,Taxes, and Insurance