Debt/Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.
Understanding the qualifying ratio
For the most part, conventional loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes things like auto loans, child support and credit card payments.
Examples:
A 28/36 ratio
- 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, please use this Mortgage Pre-Qualification Calculator.
Guidelines Only
Remember these are just guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Foxfield Financial can walk you through the pitfalls of getting a mortgage. Give us a call at 720-598-8300.