Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts are paid.
Understanding the qualifying ratio
In general, conventional mortgages 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 percentage of gross monthly income that can be spent on housing costs (including principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, and the like.
A 28/36 qualifying 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, we offer a Mortgage Qualifying Calculator.
Don't forget these ratios are just guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.
At Firelight Mortgage Consultants, we answer questions about qualifying all the time. Give us a call: (720) 550-4235.