Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts have been paid.
How to figure your qualifying ratio
Usually, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
In 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 homeowners' insurance, HOA dues, PMI - everything that constitutes the full payment.
The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes vehicle loans, child support and monthly credit card payments.
Some example data:
- 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 Qualifying Calculator.
Remember these are just guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage you can afford.
At VSI Home Lending, we answer questions about qualifying all the time. Give us a call at 2603382561.