Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other recurring loans.
About your qualifying ratio
In general, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing (this includes loan principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, and the like.
Examples:
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'd like to run your own numbers, use this Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be happy to help you pre-qualify to 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. Call us at (808) 935-0678.