Debt/Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.
About the 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 go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes things like vehicle loans, child support and credit card payments.
Examples:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, use this Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.
At U.S.A. Lending, Inc., we answer questions about qualifying all the time. Call us: 305-967-7200.