Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts are paid.
Understanding your qualifying ratio
Typically, underwriting for conventional mortgages needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying 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 costs (including mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.
Examples:
A 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.
1st Credential Mortgage Inc can answer questions about these ratios and many others. Give us a call: (281) 778-0805.