Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you've paid your other monthly loans.
How to figure your qualifying ratio
For the most part, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying 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, homeowner's insurance, taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. Recurring debt includes car loans, child support and monthly credit card payments.
Some example data:
- 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 run your own numbers, feel free to use our superb Mortgage Pre-Qualification Calculator.
Remember these ratios are only guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.