Debt-to-Income Ratio
Your ratio of debt to income is a tool lenders use to determine how much of your income can be used for a monthly mortgage payment after you have met your various other monthly debt payments.
How to figure your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
For 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, HOA dues, PMI - everything that makes up the payment.
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle 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'd like to run your own numbers, we offer a Loan Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to determine how large a mortgage loan you can afford.
Metro Mortgage can answer questions about these ratios and many others. Give us a call: 866-300-1550.