Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts are paid.
About your qualifying ratio
For the most part, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (this includes loan principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto payments, child support, etcetera.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Pre-Qualifying Calculator.
Remember these are only guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.
At U.S.A. Lending, Inc., we answer questions about qualifying all the time. Give us a call: 305-967-7200.