Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
How to figure your qualifying ratio
In general, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes auto/boat loans, child support and credit card payments.
- 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 want to run your own numbers, please use this Mortgage Pre-Qualification Calculator.
Remember these are only guidelines. We will be happy to pre-qualify you to help you determine how much you can afford.
At First Southeast Mortgage Corporation, we answer questions about qualifying all the time. Give us a call at 954.920.9799.