Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other recurring debts.
About the qualifying ratio
For the most part, underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, auto loans, child support, etcetera.
Some example data:
With a 28/36 ratio
- 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, feel free to use our superb Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage you can afford.
At Southwest Funding #841
Company NMLS # 303440, we answer questions about qualifying all the time. Call us at 5122916100.