Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you have paid your other monthly loans.
How to figure your qualifying ratio
Most conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing costs (including mortgage principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat loans, child support, and the like.
Examples:
A 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Pre-Qualifying Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.
New Millennium Mortgage Co. NMLS: 331173 can answer questions about these ratios and many others. Call us at (941) 366-5800.