Debt Ratios for Home Financing
Your debt to income ratio is a formula lenders use to determine how much money is available for your monthly mortgage payment after you meet your various other monthly debt payments.
Understanding your qualifying ratio
In general, conventional mortgages 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 is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the full payment.
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. Recurring debt includes auto loans, child support and credit card payments.
Examples:
A 28/36 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 calculate pre-qualification numbers with your own financial data, please use this Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
Bright Vision Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 9043423622.