Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you have paid your other recurring debts.
Understanding your qualifying ratio
Typically, underwriting for conventional mortgage loans 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.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, vehicle payments, child support, etcetera.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our very useful Mortgage Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.
Moneywise Lending can answer questions about these ratios and many others. Give us a call at 2813708282.