Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other recurring debts.
How to figure the qualifying ratio
Usually, 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.
For these ratios, 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, homeowners' dues, PMI - everything that constitutes the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. Recurring debt includes things like car loans, child support and credit card payments.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our Loan Qualifying Calculator.
Remember these ratios are only guidelines. We will be thrilled to go over pre-qualification to determine how much you can afford.
The Mortgage Firm - Team Meyers can answer questions about these ratios and many others. Give us a call at (407) 889-4321.