Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other recurring loans.
Understanding your qualifying ratio
Typically, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes things like auto loans, child support and credit card payments.
A 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Loan Qualification Calculator.
Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
At Firelight Mortgage Consultants, we answer questions about qualifying all the time. Call us: 3032282254.