Lenders use a ratio called “debt to income” to determine the most you can pay monthly after you have paid your other recurring loans.

About the qualifying ratio

In general, conventional loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes mortgage principal and interest, private mortgage insurance, homeowner’s insurance, property taxes, and homeowners’ association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt together. Recurring debt includes auto/boat payments, child support and monthly credit card payments.

Examples:

With a 28/36 qualifying 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, feel free to use our superb Loan Qualifying Calculator.