Debt Ratios for Home Financing
The debt to income ratio is a formula lenders use to determine how much money is available for your monthly home loan payment after you have met your other monthly debt payments.
Understanding your qualifying ratio
In general, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the full payment.
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 vehicle payments, child support and monthly credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Nationwide Home Loans can walk you through the pitfalls of getting a mortgage. Call us at 5626935048.