Ratio of Debt-to-Income
The debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly mortgage payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
Most conventional loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
In these ratios, 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.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, etcetera.
Examples:
28/36 (Conventional)
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage you can afford.
Metro Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 866-300-1550.