Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other monthly debts.
Understanding your qualifying ratio
Usually, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. 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 should be applied to housing expenses and recurring debt. Recurring debt includes things like auto loans, child support and monthly credit card payments.
For example:
With a 28/36 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 want to run your own numbers, we offer a Loan Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.
Family Mortgage Company of Hawaii, Inc. NMLS #244497 can answer questions about these ratios and many others. Give us a call at (808) 935-0678.