Debt to 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.
How to figure the qualifying ratio
In general, conventional mortgage loans need 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 your gross monthly income that can go to housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. Recurring debt includes things like vehicle payments, child support and credit card payments.
Examples:
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 calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be thrilled to help you pre-qualify to help you figure out how much you can afford.
Mortgage Headquarters of Missouri, Inc can walk you through the pitfalls of getting a mortgage. Give us a call: 5733029990.