Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.
How to figure your qualifying ratio
Usually, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, and the like.
Some example data:
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Qualifying Calculator.
Don't forget these ratios are just guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage you can afford.
At AmeriBest Mortgage, we answer questions about qualifying all the time. Call us: (321) 777-7277.