Lenders use qualifying ratios to determine how much of a mortgage you can reasonably afford.
It is important to remember that these ratios may vary from lender to lender and each
application is handled on an individual basis.
Housing Expenses
Your monthly housing costs include the mortgage principle, interest, taxes and insurance
often abreviated PITI.
- Generally speaking, to qualify for conventional loans, housing expenses should not
exceed 26% to 28% of your gross monthly income.
- For FHA loans, the ratio is 29% of gross monthly income.
Example
|
Annual Income
|
|
Gross Monthly Income |
Maximum Conventional Loan Housing Expense |
Monthly Housing Payments
|
| $30,000 |
÷12 |
$2,500 |
x28% |
$700 |
Long-Term Debt
Any expenses that extend 11 months or more into the future, such as car loans, are termed
long-term debt.
- For conventional loans, total monthly costs, including PITI and all other long-term
debt, should equal no greater than 33% to 36% of your gross monthly income.
- For FHA the ratio is 41%.
Budgeting for Your Home
When budgeting to buy a home, it is important to allow enough money for additional expenses
such as:
- Maintenance
- Utilities
- Homeowner's insurance
- Property insurance
|