Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you have paid your other monthly debts.
Understanding the qualifying ratio
In general, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the payment.
The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt. Recurring debt includes vehicle payments, child support and credit card payments.
- 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 want to run your own numbers, please use this Mortgage Loan Qualification Calculator.
Don't forget these are just guidelines. We will be thrilled to go over pre-qualification to determine how much you can afford.