Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts have been paid.
Understanding the qualifying ratio
In general, conventional 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) qualifying 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, PMI - everything that constitutes the full payment.
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes things like auto loans, child support and credit card payments.
Some example data:
28/36 (Conventional)
- 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'd like to run your own numbers, use this Mortgage Qualifying Calculator.
Just Guidelines
Remember these are only guidelines. We will be thrilled to go over pre-qualification to determine how large a mortgage loan you can afford.
Triumph Mortgage Inc can walk you through the pitfalls of getting a mortgage. Call us: 8327302000.