Ratio of Debt-to-Income
Your debt to income ratio is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after all your other recurring debt obligations have been fulfilled.
About the qualifying ratio
Typically, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (including loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes credit card payments, auto loans, child support, etcetera.
Some example data:
With a 28/36 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 Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you determine how much you can afford.
At Metro Mortgage, we answer questions about qualifying all the time. Call us at 866-300-1550.