Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.
About your qualifying ratio
In general, 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 percentage of your gross monthly income that can be applied to housing (this includes loan principal and interest, PMI, homeowner's insurance, property tax, and HOA 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 together. Recurring debt includes payments on credit cards, vehicle loans, child support, and the like.
For example:
A 28/36 ratio
- 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 Mortgage Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.
At Affirm Home Loans, we answer questions about qualifying all the time. Give us a call: (972) 292-0448.