Debt Ratios for Home Lending
Your ratio of debt to income is a formula lenders use to determine how much of your income can be used for your monthly mortgage payment after all your other monthly debts are met.
About your qualifying ratio
Most underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, use this Mortgage Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.
Not Your Average Lender can answer questions about these ratios and many others. Give us a call: 9722039033.