Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.
About your qualifying ratio
In general, 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) ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that constitutes the payment.
The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes car payments, child support and credit card payments.
Examples:
A 28/36 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'd like to calculate pre-qualification numbers with your own financial data, please use this Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We'd be thrilled to go over pre-qualification to determine how large a mortgage loan you can afford.
Triumph Mortgage Inc can answer questions about these ratios and many others. Call us at 8327302000.