Debt Ratios for Home Financing
The ratio of debt to income is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other recurring debts have been met.
How to figure your qualifying ratio
For the most part, conventional mortgage loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
In 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, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt. Recurring debt includes payments on credit cards, auto loans, child support, and the like.
For example:
28/36 (Conventional)
- 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 calculate pre-qualification numbers with your own financial data, we offer a Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to help you pre-qualify to help you figure out how large a mortgage you can afford.
Foxfield Financial can answer questions about these ratios and many others. Call us at 7205988300.