Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly loans.
About the qualifying ratio
For the most part, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt. Recurring debt includes things like auto loans, child support and monthly credit card payments.
For example:
With a 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be happy to help you pre-qualify to determine how much you can afford.
Metro Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 866-300-1550.