Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
About the qualifying ratio
Usually, 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 in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.
Some example data:
With 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 calculate pre-qualification numbers with your own financial data, we offer a Loan Pre-Qualifying Calculator.
Don't forget these ratios are only guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage you can afford.
F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) can walk you through the pitfalls of getting a mortgage. Give us a call at 214-300-8756.