Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other recurring debts.
How to figure the qualifying ratio
Typically, conventional mortgages require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing costs (including mortgage principal and interest, PMI, hazard insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.
Examples:
A 28/36 qualifying 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'd like to run your own numbers, feel free to use our superb Mortgage Qualification Calculator.
Guidelines Only
Remember these are just guidelines. We will be happy to pre-qualify you to help you figure out how large a mortgage you can afford.
Executive Lending Group, LLC can walk you through the pitfalls of getting a mortgage. Call us: 8165258000.