Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
About the qualifying ratio
In general, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the full payment.
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, etcetera.
Some example data:
A 28/36 qualifying ratio
- 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 want to run your own numbers, we offer a Mortgage Loan Qualifying Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be happy to pre-qualify you to help you figure out how large a mortgage loan you can afford.
At CHASE MORTGAGE, Inc. #317430, we answer questions about qualifying all the time. Call us at 4357556622.