Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you've paid your other recurring debts.
Understanding your qualifying ratio
For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
Some example data:
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 want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage you can afford.
Custom Lending Group can walk you through the pitfalls of getting a mortgage. Call us at 7072522700.