Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
Understanding your qualifying ratio
Most conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, vehicle payments, child support, and the like.
For example:
28/36 (Conventional)
- 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'd like to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We will be happy to help you pre-qualify to help you determine how much you can afford.
1st Credential Mortgage Inc can walk you through the pitfalls of getting a mortgage. Call us at 2817780805.