Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts are paid.
How to figure the qualifying ratio
For the most part, underwriting for conventional loans needs a qualifying ratio of 33/45. FHA loans are less strict, requiring a 31/43 ratio.
For 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, HOA dues, PMI - everything that constitutes the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, car payments, child support, etc.
For example:
33/45 (Conventional)
- Gross monthly income of $6,500 x .33 = $2,145 can be applied to housing
- Gross monthly income of $6,500 x .45 = $2,925 can be applied to recurring debt plus housing expenses
With a 31/43 (FHA) qualifying ratio
- Gross monthly income of $6,500 x ..31 = $2,015 can be applied to housing
- Gross monthly income of $6,500 x .43 = $2,795 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our Mortgage Loan Qualifying Calculator
Guidelines Only
Don't forget these are just guidelines. Many risk factors are taken into consideration. Very often these guidelines are exceeded and the borrower still qualifies.
In the market for a mortgage loan? We'll be glad to discuss our many mortgage solutions! We will be happy to pre-qualify you to determine how much you qualify for. Call me at (209) 470-7161 or complete the form below.
