Debt Ratios for Home Lending
Your debt to income ratio is a formula lenders use to calculate how much of your income is available for your monthly mortgage payment after you meet your other monthly debt payments.
Understanding your qualifying ratio
For the most part, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
In these ratios, 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 hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.
Some example data:
With a 28/36 ratio
- 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 want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.
Greystone Loans, Inc. can answer questions about these ratios and many others. Give us a call: 9094671090.