Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly loans.
How to figure the qualifying ratio
Most conventional mortgages need 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 the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the full payment.
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto loans, child support, etcetera.
For example:
28/36 (Conventional)
- 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 run your own numbers, use this Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
New Millennium Mortgage Co. NMLS: 331173 can walk you through the pitfalls of getting a mortgage. Call us: (941) 366-5800.