Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other recurring debts.
About the qualifying ratio
Usually, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the payment.
The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt. Recurring debt includes auto loans, child support and credit card payments.
Some example data:
A 28/36 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 want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
1st Credential Mortgage Inc can answer questions about these ratios and many others. Give us a call: 2817780805.