Debt Ratios for Home Financing
Your debt to income ratio is a formula lenders use to determine how much money can be used for a monthly mortgage payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
Usually, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing costs (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes credit card payments, car payments, child support, etcetera.
Some example data:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, use this Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.
At Nationwide Home Loans, we answer questions about qualifying all the time. Give us a call at 5626935048.