Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other monthly loans.
About your qualifying ratio
For the most part, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, etcetera.
Some example data:
A 28/36 qualifying ratio
- 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 run your own numbers, we offer a Mortgage Loan Pre-Qualifying Calculator.
Don't forget these are just guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
AmeriBest Mortgage can answer questions about these ratios and many others. Give us a call: (321) 777-7277.