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 monthly debts.
How to figure the qualifying ratio
Most underwriting for conventional mortgage 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 percentage of your gross monthly income that can go to housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, car payments, child support, and the like.
Some example data:
With a 28/36 qualifying ratio
- 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, please use this Mortgage Pre-Qualifying Calculator.
Don't forget these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.
PREMIERE MORTGAGE SERVICES, INC. can answer questions about these ratios and many others. Call us: 978-422-2311.
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