Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you have paid your other monthly loans.
About your qualifying ratio
For the most part, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 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, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto/boat loans, child support, etcetera.
Some example data:
With a 28/36 ratio
- 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 on your own income and expenses, please use this Loan Qualifying Calculator.
Don't forget these ratios are just guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.
Bright Vision Mortgage can walk you through the pitfalls of getting a mortgage. Call us at (904) 342-3622.