Debt/Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts have been paid.
Understanding your qualifying ratio
For the most part, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 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, PMI - everything that constitutes the payment.
The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt. Recurring debt includes payments on credit cards, car loans, child support, and the like.
Some example data:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Pre-Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Secure Mortgage Company can answer questions about these ratios and many others. Give us a call at (713) 667-5472.