Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
How to figure the qualifying ratio
In general, conventional loans require 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 in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car payments, child support and monthly credit card payments.
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 calculate pre-qualification numbers on your own income and expenses, please use this Loan Qualifying Calculator.
Don't forget these are only guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.
At Prime Capital Mortgage Corp, we answer questions about qualifying all the time. Give us a call: 248-644-1200.
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