Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts have been paid.
How to figure your qualifying ratio
Most conventional mortgage 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 applied to housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Loan Qualifying Calculator.
Guidelines Only
Remember these are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
America's Money Source can answer questions about these ratios and many others. Call us at 4078987559.