Debt/Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other recurring loans.
How to figure the qualifying ratio
Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
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. Recurring debt includes vehicle loans, child support and credit card payments.
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'd like to run your own numbers, feel free to use our Mortgage Loan Pre-Qualifying Calculator.
Just Guidelines
Remember these are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
At Reliance Mortgage Service, Inc, we answer questions about qualifying all the time. Give us a call at 562 320-0510.