Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.
Understanding the qualifying ratio
Most underwriting for conventional mortgage loans needs 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 applied to housing costs (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto/boat loans, child support, and the like.
Some example data:
- 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 run your own numbers, feel free to use our superb Mortgage Qualifying Calculator.
Remember these are only guidelines. We will be happy to help you pre-qualify to help you determine how much you can afford.
C2 Financial Corporation can answer questions about these ratios and many others. Give us a call at (727) 478-2797.
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