Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts are paid.
How to figure the qualifying ratio
Most conventional loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (including mortgage principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes things like auto loans, child support and monthly credit card payments.
Some example data:
With a 28/36 ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our very useful Mortgage Pre-Qualification Calculator.
Remember these are only guidelines. We will be happy to help you pre-qualify to determine how large a mortgage you can afford.
Executive Lending Group can answer questions about these ratios and many others. Call us: 4056158543.