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.
How to figure your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (this includes mortgage principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).
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 vehicle loans, child support and credit card payments.
Some example data:
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, use this Mortgage Qualification Calculator.
Remember these are only guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Atlantic Financial Services can walk you through the pitfalls of getting a mortgage. Give us a call: (732) 969-9300.