Debt/Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts have been paid.
Understanding your qualifying ratio
In general, conventional 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 gross monthly income that can be spent on housing (this includes principal and interest, PMI, hazard insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes auto payments, child support and monthly credit card payments.
Examples:
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 want to run your own numbers, we offer a Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be happy to help you pre-qualify 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 at 305-967-7200.