Ratio of Debt to Income
The debt to income ratio is a formula lenders use to determine how much of your income can be used for your monthly mortgage payment after you meet your other monthly debt payments.
How to figure your qualifying ratio
For the most part, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, 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 spent on housing (this includes loan principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes auto/boat payments, child support and credit card payments.
Some example data:
With a 28/36 qualifying 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'd like to run your own numbers, use this Mortgage Loan Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Mortgage Headquarters of Missouri, Inc can walk you through the pitfalls of getting a mortgage. Give us a call: 5733029990.