Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other monthly loans.
About your qualifying ratio
For the most part, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing costs (including loan principal and interest, PMI, hazard insurance, taxes, 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 together. Recurring debt includes auto loans, child support and credit card payments.
With a 28/36 ratio
- 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 want to run your own numbers, please use this Mortgage Pre-Qualification Calculator.
Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to determine how large a mortgage loan you can afford.