Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other monthly loans.
About the qualifying ratio
Usually, underwriting for conventional mortgage loans 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 amount (as a percentage) of gross monthly income that can be spent on housing costs (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes car payments, child support and credit card payments.
For example:
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 Loan Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
At F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org), we answer questions about qualifying all the time. Call us: 214-300-8756.