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 your qualifying ratio
Typically, underwriting for conventional mortgage loans requires a qualifying ratio of 31/45, and up to 65% for HARP loans. FHA loans are typically less restrictive, requiring ratios as 38/50 ratio, and higher with a supported exception. VA has a max back end ratio of 48% generally with higher ratios available based on residual income.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing costs (including principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes auto/boat payments, child support and monthly credit card payments.
Some example data:
A 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our very useful Mortgage Pre-Qualification Calculator.
Remember these ratios are just guidelines. We will be happy to pre-qualify you to determine how large a mortgage you can afford.