Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly loans.
How to figure your qualifying ratio
In general, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, and the like.
For example:
With 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 calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Loan Pre-Qualification Calculator.
Guidelines Only
Remember these are just guidelines. We will be happy to help you pre-qualify to determine how large a mortgage loan you can afford.
At Metro Mortgage, we answer questions about qualifying all the time. Call us at 866-300-1550.