Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other monthly loans.
How to figure your qualifying ratio
Most underwriting for conventional mortgage loans requires 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 gross monthly income that can be applied to housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto payments, child support, etcetera.
Some example data:
With a 28/36 qualifying 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, we offer a Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.
At Nationwide Home Loans, we answer questions about qualifying all the time. Give us a call at 5626935048.