Debt/Income Ratio
The debt to income ratio is a tool lenders use to determine how much of your income is available for a monthly mortgage payment after you meet your other monthly debt payments.
Understanding the qualifying ratio
For the most part, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 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 applied to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt together. Recurring debt includes things like car loans, child support and credit card payments.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Loan Pre-Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be happy to pre-qualify you to determine how large a mortgage you can afford.
Metro Mortgage can answer questions about these ratios and many others. Call us at 866-300-1550.