Debt Ratios for Home Lending
The ratio of debt to income is a formula lenders use to calculate how much money is available for a monthly home loan payment after all your other recurring debt obligations are fulfilled.
How to figure your qualifying ratio
Typically, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything.
The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, etcetera.
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 want to run your own numbers, please use this Mortgage Loan Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
At Foxfield Financial, we answer questions about qualifying all the time. Give us a call at 7205988300.