Debt/Income Ratio
The debt to income ratio is a tool lenders use to calculate how much money is available for a monthly home loan payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
Most underwriting for conventional mortgage loans 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.
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, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. Recurring debt includes auto payments, child support and monthly credit card payments.
Examples:
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 calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to pre-qualify you to help you determine how much you can afford.
Metro Mortgage can answer questions about these ratios and many others. Call us: 866-300-1550.