Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts are paid.
About your qualifying ratio
Usually, underwriting for conventional loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, auto loans, child support, etcetera.
Examples:
With a 28/36 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 want to run your own numbers, feel free to use our Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.
U.S.A. Lending, Inc. can answer questions about these ratios and many others. Give us a call at 305-967-7200.