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Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts have been paid.
About the qualifying ratio
Most underwriting for conventional loans 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 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 hazard insurance, HOA dues, PMI - everything that makes up the full payment.
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, etcetera.
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'd like to run your own numbers, we offer a Loan Qualification Calculator.
Just Guidelines
Remember these are only guidelines. We will be happy to pre-qualify you to help you figure out how much you can afford.
CHASE MORTGAGE INC #317430 can walk you through the pitfalls of getting a mortgage. Give us a call: 435-755-6622.