Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other recurring debts.
Understanding your qualifying ratio
Usually, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, and the like.
Some example data:
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, please use this Loan Qualification Calculator.
Don't forget these are just guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
1st Credential Mortgage Inc can walk you through the pitfalls of getting a mortgage. Give us a call: (281) 778-0805.