Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts are paid.
How to figure the qualifying ratio
Typically, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that makes up the payment.
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes car loans, child support and credit card payments.
Some example data:
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our Mortgage Loan Pre-Qualification Calculator.
Remember these are only guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
At Financial Edge Mortgage Corp., we answer questions about qualifying all the time. Call us: 425-508-9988.
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