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 monthly debts.
How to figure your qualifying ratio
For the most part, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, car loans, child support, etcetera.
Examples:
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, feel free to use our Mortgage Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be thrilled to pre-qualify you to help you determine how much you can afford.
Price Mortgage Group LLC can answer questions about these ratios and many others. Give us a call: 405-513-7700.