Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts are paid.
Understanding the qualifying ratio
Usually, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto payments, 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'd like to run your own numbers, please use this Loan Qualification Calculator.
Remember these are just guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
At Longhorn Mortgage, we answer questions about qualifying all the time. Call us at 512-302-9410.
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