Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts have been paid.
How to figure your qualifying ratio
Typically, underwriting for conventional mortgage 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 is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, etcetera.
Some example data:
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'd like to run your own numbers, use this Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
At Price Mortgage Group LLC, we answer questions about qualifying all the time. Call us at 405-513-7700.