Debt to Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.
About your qualifying ratio
Most conventional loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
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 that constitutes the payment.
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.
Some example data:
- 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'd like to calculate pre-qualification numbers with your own financial data, use this Mortgage Loan Qualifying Calculator.
Don't forget these ratios are just guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Savers Home Loans can answer questions about these ratios and many others. Give us a call: (800) 974-0509.