Debt/Income Ratio
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Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts have been paid.
Understanding your qualifying ratio
For the most part, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing. 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 spent on housing costs and recurring debt. Recurring debt includes car payments, child support and monthly credit card payments.
Some example data:
A 28/36 qualifying ratio
- 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, we offer a Mortgage Qualification Calculator.
Remember these are only guidelines. We will be thrilled to help you pre-qualify to help you determine how much you can afford.
At Smart Mortgage & Investments, we answer questions about qualifying all the time. Give us a call: (818) 920-3522.