Debt Ratios for Home Lending
Your debt to income ratio is a tool lenders use to calculate how much money can be used for a monthly mortgage payment after all your other monthly debts have been fulfilled.
About the qualifying ratio
For the most part, 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 go to housing costs (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, etcetera.
For example:
With a 28/36 qualifying ratio
- 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'd like to run your own numbers, use this Mortgage Pre-Qualifying Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
Southwest Funding #841
Company NMLS # 303440 can answer questions about these ratios and many others. Give us a call at 5122916100.