Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other recurring debts.
Understanding your qualifying ratio
Most underwriting for conventional mortgages needs 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 in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, etcetera.
- 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 run your own numbers, please use this Loan Pre-Qualification Calculator.
Don't forget these are only guidelines. We will 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: 8165258000.
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