Debt Ratios for Home Financing
The debt to income ratio is a tool lenders use to determine how much money can be used for a monthly home loan payment after you have met your other monthly debt payments.
About your qualifying ratio
Most underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little 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 go to housing costs (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, auto/boat payments, child support, etcetera.
Some example data:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Loan Pre-Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
America's Money Source can answer questions about these ratios and many others. Call us at 4078987559.