Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts are paid.
About your qualifying ratio
In general, conventional loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes auto/boat payments, child support and credit card payments.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget 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.
One Source Lending can answer questions about these ratios and many others. Give us a call: 3032207500.