Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
About the qualifying ratio
Usually, conventional mortgages need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes things like auto loans, child support and monthly credit card payments.
Examples:
28/36 (Conventional)
- 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 calculate pre-qualification numbers with your own financial data, please use this Mortgage Pre-Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be happy to pre-qualify you to help you determine how large a mortgage you can afford.
CHASE MORTGAGE, Inc. #317430 can walk you through the pitfalls of getting a mortgage. Give us a call: 4357556622.