Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other monthly loans.
Understanding the qualifying ratio
Usually, 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) ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that constitutes the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, and the like.
Some example data:
28/36 (Conventional)
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.
VSI Home Lending can answer questions about these ratios and many others. Call us at 2603382561.