Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.
How to figure your qualifying ratio
Typically, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt together. Recurring debt includes car loans, child support and monthly credit card payments.
Some example data:
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our superb Loan Qualification Calculator.
Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
At Abbey Mortgage, we answer questions about qualifying all the time. Give us a call at 352-369-4200.