Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
About your qualifying ratio
Usually, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing (this includes mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto payments, child support, etcetera.
Some example data:
With a 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our superb Mortgage Loan Pre-Qualification Calculator.
Don't forget these are just guidelines. We will be thrilled to pre-qualify you to determine how much you can afford.
Alerus Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 952 417 8481.