Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other monthly debts.
Understanding your qualifying ratio
Typically, 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) ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes vehicle payments, child support and monthly credit card payments.
Some example data:
A 28/36 ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 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 Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.
At Executive Lending Group, LLC, we answer questions about qualifying all the time. Give us a call: 8165258000.