Ratio of Debt-to-Income
The ratio of debt to income is a tool lenders use to calculate how much of your income can be used for your monthly home loan payment after all your other monthly debt obligations are fulfilled.
Understanding your qualifying ratio
For the most part, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 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, Private Mortgage Insurance - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat payments, child support and credit card payments.
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 with your own financial data, feel free to use our very useful Mortgage Loan Pre-Qualifying Calculator.
Don't forget these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.