Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.
How to figure your qualifying ratio
For the most part, conventional loans require 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 in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt. Recurring debt includes things like auto 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'd like to run your own numbers, feel free to use our Mortgage Loan Qualification Calculator.
Don't forget these are only guidelines. We'd be happy to pre-qualify you to help you figure out how large a mortgage loan you can afford.
At Advanced Mortgage, Inc., we answer questions about qualifying all the time. Call us: (972)991-0080.