Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.
About the qualifying ratio
Most underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that constitutes the payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, et cetera.
Some example data:
- 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 calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Pre-Qualifying Calculator.
Don't forget these are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
Mortgage Direct Inc. can answer questions about these ratios and many others. Call us: 1-844-MBROKER (1-844-627-6537). Want to get started? Apply Here