Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts have been paid.
How to figure the qualifying ratio
For the most part, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
For these ratios, 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 hazard insurance, homeowners' dues, PMI - everything that makes up the payment.
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, etcetera.
Some example data:
A 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our Loan Qualification Calculator.
Don't forget these are only guidelines. We'd be happy to help you pre-qualify to determine how large a mortgage loan you can afford.
First Southeast Mortgage Corporation can answer questions about these ratios and many others. Give us a call at 954.920.9799.