Debt/Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other monthly loans.
Understanding the qualifying ratio
Most conventional loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing costs (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt. Recurring debt includes credit card payments, auto loans, child support, etcetera.
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 Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.
Bright Vision Mortgage can answer questions about these ratios and many others. Give us a call at 9043423622.