Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts are paid.
About the qualifying ratio
Usually, conventional loans need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Some example data:
A 28/36 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 on your own income and expenses, feel free to use our Mortgage Loan Qualification Calculator.
Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to help you figure out how much you can afford.
At Foxfield Financial, we answer questions about qualifying all the time. Give us a call: 720-598-8300.