Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.
How to figure the qualifying ratio
Typically, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, car payments, child support, and the like.
Some example data:
28/36 (Conventional)
- 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 with your own financial data, we offer a Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We will be happy to pre-qualify you to help you determine how much you can afford.
VSI Home Lending can walk you through the pitfalls of getting a mortgage. Give us a call: 2603382561.