Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts have been paid.
About your qualifying ratio
For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (this includes loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, and the like.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Loan Qualification Calculator.
Just Guidelines
Remember these are only guidelines. We will be happy to pre-qualify you to help you determine how large a mortgage loan you can afford.
Metro Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 866-300-1550.