Ratio of Debt to Income
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Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.
Understanding the qualifying ratio
Usually, conventional loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (including mortgage principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, and the like.
Some example data:
A 28/36 qualifying ratio
- 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 very useful Loan Qualifying Calculator.
Remember these are just guidelines. We will be happy to help you pre-qualify to help you determine how large a mortgage loan you can afford. Omni Mortgage Corp. can walk you through the pitfalls of getting a mortgage. Give us a call: 718-441-7000.