Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other recurring loans.
How to figure the qualifying ratio
For the most part, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes credit card payments, car loans, child support, and the like.
Some example data:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, use this Loan Qualifying Calculator.
Guidelines Only
Remember these are just guidelines. We will be thrilled to help you pre-qualify to help you determine how large a mortgage loan you can afford.
At Middleton Website Test Services, we answer questions about qualifying all the time. Call us at 4058873713.