Debt-to-Income Ratio
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Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other recurring loans.
About your qualifying ratio
In general, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes things like auto payments, child support and credit card payments.
For example:
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, we offer a Mortgage Loan Pre-Qualification Calculator.
Don't forget these are just guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford. 3 Reasons Home Loans can answer questions about these ratios and many others. Give us a call at (661) 288-2987.