Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts are paid.
About your qualifying ratio
Usually, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing costs (including principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat loans, child support, etcetera.
Some example data:
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, please use this Loan Pre-Qualification Calculator.
Remember these ratios are only guidelines. We will be happy to help you pre-qualify to determine how much you can afford.
At Sky Apply Mortgage, Inc, we answer questions about qualifying all the time. Give us a call: (813) 200-7931.
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