Debt to Income Ratio
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring debts.
How to figure your qualifying ratio
Most conventional mortgages need 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 your gross monthly income that can be spent on housing (this includes loan principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.
Some example data:
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Mortgage Pre-Qualifying Calculator.
Don't forget these are only guidelines. We'd be thrilled to pre-qualify you to help you determine how much you can afford.
Ward Kilduff Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: (860) 658-7100.
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