Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other recurring debts.
How to figure the qualifying ratio
In general, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes things like auto payments, child support and monthly credit card payments.
Examples:
With a 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will 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 9043423622.