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 debts.
About your qualifying ratio
Most 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) qualifying ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, car payments, child support, etcetera.
For example:
A 28/36 qualifying ratio
- 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 run your own numbers, use this Loan Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.
At Price Mortgage Group LLC, we answer questions about qualifying all the time. Call us at 405-513-7700.