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 loans.
About your qualifying ratio
In general, underwriting for conventional mortgages needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (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 (this includes principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt. Recurring debt includes payments on credit cards, auto/boat payments, child support, and the like.
Some example data:
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'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Qualifying Calculator.
Guidelines Only
Don't forget these are just guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage you can afford.
At CHASE MORTGAGE, Inc. #317430, we answer questions about qualifying all the time. Call us: 4357556622.