Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other recurring debts.
About the qualifying ratio
Typically, underwriting for conventional mortgage loans requires 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 is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, auto loans, child support, etcetera.
Some example data:
A 28/36 qualifying 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, use this Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
At Sky Apply Mortgage, Inc, we answer questions about qualifying all the time. Give us a call at 8132007931.