Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.
How to figure the qualifying ratio
Usually, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that makes up the payment.
The second number in the ratio is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes credit card payments, auto/boat loans, child support, etcetera.
Some example data:
- 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'd like to run your own numbers, feel free to use our Loan Qualification Calculator.
Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to help you figure out how much you can afford.
At Channel Mortgage LLC, we answer questions about qualifying all the time. Call us at (718) 639-9500.