Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other monthly loans.
Understanding the qualifying ratio
For the most part, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes auto payments, child support and monthly credit card payments.
Some example data:
With a 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Qualifying Calculator.
Remember these ratios are just guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
Contemporary Mortgage Services, Inc can walk you through the pitfalls of getting a mortgage. Give us a call: 407-834-3377.
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