Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other recurring loans.
About your qualifying ratio
Usually, conventional mortgage loans require 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.
In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto payments, child support, etcetera.
Some example data:
- 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 on your own income and expenses, please use this Loan Qualification Calculator.
Remember these ratios are only guidelines. We will be happy to help you pre-qualify to determine how large a mortgage you can afford.
At Valley Savers Mortgage, LLC, we answer questions about qualifying all the time. Call us: (602) 332-9544.
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