Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.
How to figure your qualifying ratio
In general, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto payments, child support, etcetera.
Examples:
With a 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, use this Loan Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be happy to pre-qualify you to help you figure out how much you can afford.
1st Credential Mortgage Inc can answer questions about these ratios and many others. Call us at (281) 778-0805.