Debt / Income Ratio

What is a debt-to-income ratio?

The ratio of debt-to-income is a formula lenders use to determine how much of your income can be used for your monthly home loan payment, after all your other monthly debts have been met.

What is the qualifying ratio for Teacher Next Door?

Qualifying ratios are not determined by Next Door Programs. Typically, under Federal guidelines, conventional loans require 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 amount (as a percentage) of your gross monthly income that can be spent on housing (including principal and interest, PMI, homeowner's insurance, taxes, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that should be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, and the like.

For example:

A 28/36 ratio

• Gross monthly income of $3,500 x .28 = $980 can be applied to housing
• Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 qualifying ratio

• Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
• Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

Just Guidelines

Remember, these ratios are only guidelines. A Teacher Next Door Program Specialist will be happy to pre-qualify you, to help you figure out how much home you can afford.

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