Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other monthly debts.
About your qualifying ratio
Most conventional mortgage loans require 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 your gross monthly income that can go to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, vehicle payments, child support, etcetera.
Some example data:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our very useful Mortgage Loan Qualifying Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to pre-qualify you to help you figure out how large a mortgage you can afford.
At Alternative Mortgage Group, we answer questions about qualifying all the time. Call us at 561-395-4264.