Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other monthly loans.
How to figure your qualifying ratio
Most conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle loans, 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'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
Metro Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 4054054054.