Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring loans.
Understanding your qualifying ratio
In general, 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 percentage of gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.
Examples:
28/36 (Conventional)
- 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 calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualifying Calculator.
Guidelines Only
Remember these are just guidelines. We will be happy to help you pre-qualify to 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.