Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you have paid your other recurring debts.
About the qualifying ratio
In general, underwriting for conventional mortgage loans needs 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 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, homeowners' dues, PMI - everything that constitutes the full payment.
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes things like auto payments, child support and credit card payments.
With a 28/36 qualifying ratio
- 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, we offer a Mortgage Loan Pre-Qualifying Calculator.
Remember these are just guidelines. We'd be happy to pre-qualify you to help you figure out how large a mortgage you can afford.
Precision Mortgage, Inc. can walk you through the pitfalls of getting a mortgage. Call us at 206-920-1112.