Debt Ratios for Home Lending
The ratio of debt to income is a tool lenders use to calculate how much money can be used for your monthly home loan payment after all your other monthly debts have been fulfilled.
How to figure your qualifying ratio
For the most part, underwriting for conventional loans requires 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 your gross monthly income that can go to housing (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes things like auto loans, child support and credit card payments.
For example:
With a 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Mortgage Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We will be happy to help you pre-qualify to determine how large a mortgage loan you can afford.
Primemax Mortgage Group, NMLS#195523 can answer questions about these ratios and many others. Give us a call at 2565439211.