A Q&A on Debt-to-Income Ratio for Buyers

Real Estate Podcast with Donald Payne

Hello everyone and welcome back to another segment of “Facebook Live Friday!” I’m joined again today by my friend Bree to answer some questions on “debt-to-income ratio,” which is a term that buyers should become familiar with before setting out on the home buying process. Q. What is debt-to-income ratio? Debt-to-income ratio is what your lender will use to compare your gross, or pre-tax, income against your debt load to determine what you can afford with a mortgage and all other debt obligations considered. From that, they’ll come up with a monthly mortgage payment that should be within your budget. Q. What are the debt-to-income ratios for FHA loans? Right now, the debt-to-income ratio for an FHA loan is 31% on the front end and 43% for total debts on the back end. If your credit score is higher than 640 or 650 and you can show you have cash reserves put away, your lender might be willing to manually underwrite your loan and come up with a more favorable payment. “It’s very important to contact a mortgage lender who will help you determine what you qualify for.” Q. You mentioned “front end” and “back end” in the context of ratios. What do those terms mean? I mentioned 31% on the front end, which is the percentage of your monthly income that will be allocated to a mortgage. This serves as the threshold for your mortgage affordability on a standard FHA loan. As for the back end, the 43% includes all other debt obligations you have, such as any car loans, student loans, and/or credit debt. And again, those percentages can be adjusted based upon your credit score and cash reserves. That’s why it’s very important to contact a mortgage lender who will help you determine what you qualify for. I thank Bree for joining me and asking some crucial questions about debt-to-income ratio and how it relates to the home buying process. If you have any further questions about the specifics of debt-to-income ratio and the process of working with a lender, please contact me by email at [e-mail], by phone at 614-323-4348, or you can go to my website at VisionRealty.com. I’d be happy to help!