Debt Ratios for Home Financing
The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other recurring debts have been met.
Understanding your qualifying ratio
Typically, conventional mortgage loans need 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 percentage of gross monthly income that can be spent on housing (this includes mortgage principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes payments on credit cards, vehicle loans, child support, and the like.
For example:
With 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 ratios are only guidelines. We'd be thrilled to help you pre-qualify to help you figure out how much you can afford.
Southwest Funding #841
Company NMLS # 303440 can answer questions about these ratios and many others. Give us a call: 5122916100.