Debt to Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
How to figure your qualifying ratio
Most conventional loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 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 mortgage principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, etcetera.
Examples:
A 28/36 qualifying ratio
- 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 calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.
Secure Mortgage Company can walk you through the pitfalls of getting a mortgage. Give us a call: (713) 667-5472.