Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts are paid.
Understanding the qualifying ratio
For the most part, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 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 should be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, auto payments, child support, and the like.
Examples:
28/36 (Conventional)
- 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, please use this Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.
At Coastal Mortgage Corp., we answer questions about qualifying all the time. Give us a call: 504-866-5626.