Debt Ratios for Home Financing
Your debt to income ratio is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after all your other recurring debts are met.
About the qualifying ratio
Most underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 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 (this includes principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto payments, child support, and the like.
Some example data:
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 want to run your own numbers, feel free to use our very useful Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to determine how large a mortgage loan you can afford.
Nationwide Home Loans can answer questions about these ratios and many others. Give us a call at 5626935048.