Debt Ratios for Home Financing
Your ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly home loan payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
For the most part, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 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 (including loan principal and interest, PMI, hazard insurance, property taxes, and HOA dues).
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes auto payments, child support and monthly credit card payments.
For example:
With a 28/36 qualifying 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 Loan Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
At 1st Credential Mortgage Inc, we answer questions about qualifying all the time. Give us a call at 2817780805.