Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
Understanding your qualifying ratio
Most underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Examples:
28/36 (Conventional)
- 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 calculate pre-qualification numbers with your own financial data, use this Mortgage Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.
Norcal Capital Group, Inc can walk you through the pitfalls of getting a mortgage. Give us a call: 6507631924.