Debt Ratios for Home Financing
The ratio of debt to income is a formula lenders use to calculate how much money can be used for your monthly home loan payment after all your other recurring debt obligations have been met.
How to figure your qualifying ratio
In general, conventional mortgage 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.
For these ratios, the first number is the percentage of your gross monthly income that can go toward 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 that can be spent on housing costs and recurring debt together. Recurring debt includes things like auto payments, child support and credit card payments.
Examples:
28/36 (Conventional)
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualification Calculator.
Guidelines Only
Remember these are only guidelines. We'd be happy to help you pre-qualify to determine how much you can afford.
Bright Vision Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at 9043423622.