Debt/Income Ratio
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts have been paid.
Understanding the qualifying ratio
Usually, 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 percentage of your gross monthly income that can be spent on housing costs (this includes mortgage principal and interest, private mortgage insurance, homeowner's 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 things like vehicle loans, child support and monthly credit card payments.
For example:
A 28/36 qualifying ratio
- 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 want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We'd be happy to pre-qualify you to help you figure out how large a mortgage you can afford.
At Riviera Funding NMLS#861382 CA DRE Broker #01186669, we answer questions about qualifying all the time. Call us at 3103737406.