Debt to income ratio is the ratio between your monthly expenses and your income. Before sanctioning a mortgage for your house, the lenders normally calculate the debt to income ratio to work out your eligibility for the mortgage. The ratio is measured against two qualifying numbers 28 and 36. Higher the ratio, lesser is the chance of getting a loan.
The number 28 refers to a maximum percentage of your monthly income the lender allows you for meeting the housing expenses. This includes the loan principal and interest, private mortgage insurance, property tax, and other expenses such as the home association charges.
The number 36 indicates the maximum percentage of your monthly income the lender allows you for meeting both the housing expenses and the recurring expenses such as credit card payments, car loans, education loans, or any other recurring expenses that will not be paid off in the immediate future after taking up a mortgage.
Let us take an example of a borrower whose monthly income is $4000
28% of 4000 = 1120, i.e., $1120 will be allowed for meeting the housing expenses.
36% of 4000 = 1440, i.e., $1440 will be allowed for both housing...
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