Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts are paid.
About your qualifying ratio
Most conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes loan principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, car loans, child support, and the like.
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, we offer a Loan Qualifying Calculator.
Remember these are only guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
At Executive Lending Group, LLC, we answer questions about qualifying all the time. Give us a call: (816) 525-8000 & (81.
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