Debt-to-Income Ratio
The ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly home loan payment after you have met your various other monthly debt payments.
About your qualifying ratio
For the most part, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
For 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 hazard insurance, homeowners' dues, PMI - everything.
The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto payments, child support, etcetera.
For example:
A 28/36 ratio
- 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 want to run your own numbers, please use this Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Metro Mortgage can answer questions about these ratios and many others. Call us at 866-300-1550.