Debt/Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts have been paid.
About the qualifying ratio
Typically, underwriting for conventional mortgage 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) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, vehicle payments, child support, and the like.
Examples:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Mortgage Pre-Qualification Calculator.
Guidelines Only
Remember these are just guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.
Metro Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 866-300-1550.