Debt-to-Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring loans.
Understanding your qualifying ratio
Usually, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, etcetera.
Examples:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our very useful Mortgage Pre-Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We'd be thrilled to help you pre-qualify to help you determine 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: 3103737406.