Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts are paid.
How to figure the qualifying ratio
For the most part, conventional loans require a qualifying ratio of 28/36. FHA loans are 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. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- 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 want to calculate pre-qualification numbers with your own financial data, use this Loan Qualification Calculator.
Just Guidelines
Remember these ratios are only guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
Primemax Mortgage Group, NMLS#195523 can walk you through the pitfalls of getting a mortgage. Call us: 2565439211.