Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.
How to figure your qualifying ratio
In general, conventional mortgages need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.
Some example data:
28/36 (Conventional)
- 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 calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Loan Pre-Qualification Calculator.
Guidelines Only
Remember these are just guidelines. We'd be happy to help you pre-qualify to 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 4357556622.