Ratio of Debt-to-Income
The debt to income ratio is a tool lenders use to calculate how much of your income is available for your monthly home loan payment after you meet your other monthly debt payments.
How to figure the qualifying ratio
Most conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.
For example:
A 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our Loan Qualifying Calculator.
Guidelines Only
Remember these are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.
Metro Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 866-300-1550.