Debt to Income Ratio

Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after all your other monthly debt obligations are fulfilled.

Understanding the qualifying ratio

Usually, underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes car loans, child support and monthly credit card payments.

Examples:

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 calculate pre-qualification numbers with your own financial data, use this Mortgage Pre-Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We will be thrilled to pre-qualify you to determine how much you can afford.

Macon Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at 478-474-4600.