Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts are paid.
About your qualifying ratio
Usually, underwriting for conventional loans needs 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 amount (as a percentage) of gross monthly income that can be applied to housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes vehicle payments, child support and credit card payments.
For example:
28/36 (Conventional)
- 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'd like to calculate pre-qualification numbers with your own financial data, use this Mortgage Loan Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to determine how much you can afford.
At Price Mortgage Group LLC, we answer questions about qualifying all the time. Call us: 405-513-7700.