Debt Ratios for Home Financing
The ratio of debt to income is a formula lenders use to calculate how much of your income can be used for your monthly mortgage payment after all your other monthly debt obligations are fulfilled.
Understanding the qualifying ratio
For the most part, conventional mortgages require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. Recurring debt includes auto payments, child support and credit card payments.
Some example data:
28/36 (Conventional)
- 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, use this Loan Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We will be happy to help you pre-qualify to determine how much you can afford.
Greystone Loans, Inc. can walk you through the pitfalls of getting a mortgage. Call us: 9094671090.