Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other recurring loans.
Understanding the qualifying ratio
Usually, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (this includes principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. Recurring debt includes auto payments, child support and credit card payments.
Examples:
With a 28/36 qualifying ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our superb Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
At Primemax Mortgage Group, NMLS#195523, we answer questions about qualifying all the time. Call us at 2565439211.