Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you've paid your other recurring loans.
How to figure 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (this includes mortgage principal and interest, PMI, homeowner's 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 vehicle loans, child support and credit card payments.
A 28/36 ratio
- 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'd like to run your own numbers, we offer a Loan Pre-Qualifying Calculator.
Remember these are only guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage you can afford.
At Augusta Mortgage Solutions, we answer questions about qualifying all the time. Call us at 706-860-5514.