Debt/Income Ratio
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts are paid.
About your qualifying ratio
Typically, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, 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 go to housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, child support, etcetera.
Examples:
28/36 (Conventional)
- 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 want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
At Augusta Mortgage Solutions, we answer questions about qualifying all the time. Call us at 7068605514.