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.
How to figure your qualifying ratio
Most conventional loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, 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 spent on housing costs (this includes mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. Recurring debt includes vehicle loans, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- 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 calculate pre-qualification numbers with your own financial data, use this Mortgage Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.
Bright Vision Mortgage can answer questions about these ratios and many others. Call us: 9043423622.