Debt Ratios for Home Lending
The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other monthly debt obligations have been met.
How to figure the qualifying ratio
Usually, conventional loans need 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 go to housing (this includes principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes vehicle loans, child support and credit card payments.
Some example data:
A 28/36 qualifying ratio
- 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 Mortgage Qualification Calculator.
Guidelines Only
Remember these are only guidelines. We'd be happy to help you pre-qualify to help you determine how large a mortgage loan you can afford.
Bright Vision Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 9043423622.