Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts are paid.
About your qualifying ratio
In general, conventional mortgage loans require 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 gross monthly income that can be spent on housing costs (including loan principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.
Examples:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our superb Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We will be happy to pre-qualify you to help you figure out how much you can afford.
At Norcal Capital Group, Inc, we answer questions about qualifying all the time. Give us a call at 6507631924.