Debt-to-income Ratios

Real Estate

Do You Know Your Debt-to-income Ratios?

The debt-to-income ratio is the way mortgage lenders decide how much money you can afford to borrow. It is the percentage of your monthly gross income used to pay your monthly debts outside of your monthly living expenses. Two calculations are involved.  There is a front ratio and a back ratio, written in ratio form, like this; 32/38.

The first number is the percentage of your monthly gross income used to pay housing costs, such as mortgage principal, interest, taxes, insurance, mortgage insurance and homeowner's’ association dues. The second number is your monthly consumer debt, like installment loans, such as student loans, credit card debt, car payments, and so on.

So a debt-to-income ratio of 32/38 means that 32 percent of your monthly gross income is used to pay your monthly housing costs, and 6 percent of your monthly gross income is used to pay your consumer debt—so your housing costs plus your consumer debt equals 38 percent.

33/38 is a common guideline for debt-to-income ratios. Depending on your down payment and credit score, the guidelines can be looser or tighter, and guidelines also vary according to program. The FHA, for instance, requires no better than a 29/41 qualifying ratio, while the VA guidelines require no front ratio but a back ratio of 41.

Contact Elaine at (916) 266-1366 for excellent referrals to local direct lenders to speak to about your mortgage loan.  Knowing your Debt-to-income ratios, your Fico score, getting Pre-Approved for your Mortgage loan with an outstanding direct lender, and working with Elaine at your service are the first and most important steps in the successfully purchase of your next home.