Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
About the qualifying ratio
Most underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little 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, property taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes payments on credit cards, vehicle loans, child support, and the like.
Examples:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our very useful Mortgage Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
Affirm Home Loans can walk you through the pitfalls of getting a mortgage. Give us a call: (972) 292-0448.