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Debt to Income Ratio
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly loans.
How to figure the qualifying ratio
Typically, conventional mortgage loans require 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 applied to housing (this includes mortgage principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. Recurring debt includes credit card payments, auto/boat loans, child support, and the like.
Examples:
28/36 (Conventional)
- 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 want to calculate pre-qualification numbers on your own income and expenses, please use this Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
At HT Lending Group, LLC, we answer questions about qualifying all the time. Give us a call: 817-431-8618.