Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other monthly debts.
How to figure your qualifying ratio
Most underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. Recurring debt includes auto loans, child support and credit card payments.
Some example data:
With a 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Mortgage Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.
At Foxfield Financial, we answer questions about qualifying all the time. Call us: 7205988300.