Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.
Understanding the qualifying ratio
Most 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) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing (including loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.
Some example data:
A 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Mortgage Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
CHASE MORTGAGE INC #317430 can walk you through the pitfalls of getting a mortgage. Give us a call at 435-755-6622.