Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts have been paid.
How to figure your qualifying ratio
In general, conventional mortgages require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing costs (including mortgage principal and interest, PMI, hazard insurance, property taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes car payments, child support and credit card payments.
Examples:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our Loan Pre-Qualifying Calculator.
Just Guidelines
Remember these are only guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.
At Price Mortgage Group LLC, we answer questions about qualifying all the time. Give us a call at 405-513-7700.