Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
How to figure the qualifying ratio
In general, 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) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (including principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes car payments, child support and credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 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 Loan Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.
At Riviera Funding NMLS#861382 CA DRE Broker #01186669, we answer questions about qualifying all the time. Call us: 3103737406.