Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other recurring debts.
About the 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.
For these ratios, 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 homeowners' insurance, HOA dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. Recurring debt includes car loans, child support and monthly credit card payments.
Some example data:
With a 28/36 qualifying ratio
- 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 want to calculate pre-qualification numbers on your own income and expenses, please use this Loan Pre-Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage you can afford.
At New Millennium Mortgage Co. NMLS: 331173, we answer questions about qualifying all the time. Give us a call at (941) 366-5800.