Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.
About your qualifying ratio
Typically, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (including loan principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, auto payments, child support, and the like.
Some example data:
28/36 (Conventional)
- 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 want to run your own numbers, feel free to use our very useful Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to help you determine how large a mortgage loan you can afford.
Secure Mortgage Company can walk you through the pitfalls of getting a mortgage. Call us at (713) 667-5472.