Ratio of Debt to Income
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other recurring debts.
About your qualifying ratio
Usually, underwriting for conventional mortgages requires 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 go to housing costs (this includes mortgage principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, car loans, child support, etcetera.
For example:
A 28/36 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 calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Pre-Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
Augusta Mortgage Solutions can walk you through the pitfalls of getting a mortgage. Call us: 7068605514.