Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts are paid.
How to figure the qualifying ratio
For the most part, conventional mortgages need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing (this includes loan principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto loans, child support, etcetera.
Examples:
A 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be thrilled to help you pre-qualify to help you figure out 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: 405-513-7700.