Debt Ratios for Home Lending
The ratio of debt to income is a tool lenders use to calculate how much of your income is available for your monthly mortgage payment after all your other monthly debt obligations are fulfilled.
How to figure the qualifying ratio
For the most part, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes things like vehicle payments, child support and credit card payments.
Examples:
28/36 (Conventional)
- 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, use this Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234 can answer questions about these ratios and many others. Call us: 2146635355.