Ratio of Debt-to-Income
Your debt to income ratio is a formula lenders use to determine how much of your income can be used for your monthly home loan payment after you have met your various other monthly debt payments.
About the qualifying ratio
Most underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, and the like.
Some example data:
28/36 (Conventional)
- 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 want to run your own numbers, we offer a Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.
At Metro Mortgage, we answer questions about qualifying all the time. Give us a call: 866-300-1550.