Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other monthly loans.
How to figure your qualifying ratio
Typically, underwriting for conventional mortgages needs 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 spent on housing costs (including loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt. Recurring debt includes things like auto payments, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Mortgage Qualification Calculator.
Just Guidelines
Remember these are only guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
At Price Mortgage Group LLC, we answer questions about qualifying all the time. Give us a call: 405-513-7700.