Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
How to figure the qualifying ratio
For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt together. Recurring debt includes vehicle payments, child support and credit card payments.
Examples:
With a 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 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 Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We will be thrilled to pre-qualify you to help you determine how much you can afford.
At Metro Mortgage, we answer questions about qualifying all the time. Call us: 866-300-1550.