Debt Ratios for Home Financing
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 recurring debt obligations are fulfilled.
About the qualifying ratio
For the most part, conventional mortgages require 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 is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes vehicle loans, child support and monthly credit card payments.
Examples:
With a 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, use this Mortgage Loan Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Custom Lending Group can answer questions about these ratios and many others. Call us: 7072522700.