Qualification Ratios: How Do They Figure These Ratios, Anyway?
If you've ever brought up the subject of getting a loan for any type of major purchase, you've probably heard the phrase "how much do you qualify for?" or "we'll need to get you qualified for a loan". When it comes to your mortgage, qualification ratios may seem like something from your high school calculus class. It's actually not rocket science. The math is simple, and the concept is sound. Here's the simple breakdown of how qualification of loanability is considered.
Debt to Income Ratio
Income Ratio is your total monthly housing payment as a percentage of your gross monthly income. Your total housing payment consists of principal, interest, property taxes, hazard insurance, mortgage insurance (if applicable) and any condo/co-op or association fees.
Debt Ratio is your total monthly housing payment plus any recurring monthly debts as a percentage of your gross monthly income. Other debts include all other payments such as cars, credit cards, student loans, personal loans, retirement savings loans, etc.
How High Can they Go?
It varies by loan program and other factors, but the approximate range for your debt ratio is from about 33% to 43%. Before applying for a loan, it may be in your best interest to do some shopping around. Different lenders may have different limits and flexibilities that could get you an approval much easier than others.
Example: If your total gross income is $5,000 per month, your total housing payment plus recurring debt payments should not exceed approximately $2,150 for a 43% ratio or $1,650 for 33% ratio.
What's Right for Me?
Truth is, everyone is different. Some people are comfortable using a higher percentage of their income, and others are not. Family size, other expenses and lifestyle can all have an impact. The bottom line is whether you're comfortable with a higher loan amount or not, the decision will ultimately come down to what your lender's underwriter is comfortable with loaning to you based on your debt to income ratio.
Let's Look at the Numbers
If you're looking into your loan options, give us a call. We're happy to take the time to go through the numbers with you. Together, we can help determine a comfortable payment and corresponding purchase price. Reach out today. We've got more than 20 years of experience closing loans and making dreams come true, and can get you pre-qualified and help you choose a mortgage program that's right for you!
Mortgage Headquarters of Missouri, Inc
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
NMLS # 1229111
Debt to Income Ratio
Income Ratio is your total monthly housing payment as a percentage of your gross monthly income. Your total housing payment consists of principal, interest, property taxes, hazard insurance, mortgage insurance (if applicable) and any condo/co-op or association fees.
Debt Ratio is your total monthly housing payment plus any recurring monthly debts as a percentage of your gross monthly income. Other debts include all other payments such as cars, credit cards, student loans, personal loans, retirement savings loans, etc.
How High Can they Go?
It varies by loan program and other factors, but the approximate range for your debt ratio is from about 33% to 43%. Before applying for a loan, it may be in your best interest to do some shopping around. Different lenders may have different limits and flexibilities that could get you an approval much easier than others.
Example: If your total gross income is $5,000 per month, your total housing payment plus recurring debt payments should not exceed approximately $2,150 for a 43% ratio or $1,650 for 33% ratio.
What's Right for Me?
Truth is, everyone is different. Some people are comfortable using a higher percentage of their income, and others are not. Family size, other expenses and lifestyle can all have an impact. The bottom line is whether you're comfortable with a higher loan amount or not, the decision will ultimately come down to what your lender's underwriter is comfortable with loaning to you based on your debt to income ratio.
Let's Look at the Numbers
If you're looking into your loan options, give us a call. We're happy to take the time to go through the numbers with you. Together, we can help determine a comfortable payment and corresponding purchase price. Reach out today. We've got more than 20 years of experience closing loans and making dreams come true, and can get you pre-qualified and help you choose a mortgage program that's right for you!
Mortgage Headquarters of Missouri, Inc4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
NMLS # 1229111
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