Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other monthly loans.
Understanding the qualifying ratio
Most 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 percentage of gross monthly income that can be applied to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, auto/boat loans, child support, and the like.
For example:
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 want to run your own numbers, feel free to use our very useful Mortgage Loan Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be happy to help you pre-qualify to help you determine how much you can afford.
At Not Your Average Lender, we answer questions about qualifying all the time. Call us at 9722039033.