Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
Understanding your qualifying ratio
Usually, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes things like car payments, child support and credit card payments.
A 28/36 qualifying ratio
- 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 calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Loan Qualification Calculator.
Don't forget these ratios are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Cottingham Mortgage Inc. can walk you through the pitfalls of getting a mortgage. Give us a call at (800) 288-9693.