Debt Ratios for Home Lending
Your debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly mortgage payment after all your other recurring debts have been fulfilled.
Understanding your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes things like auto loans, child support and monthly credit card payments.
Some example data:
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 on your own income and expenses, we offer a Loan Qualification Calculator.
Just Guidelines
Remember these are only guidelines. We will be thrilled to go over pre-qualification to determine how large a mortgage loan you can afford.
Firelight Mortgage Consultants can answer questions about these ratios and many others. Call us at 3032282254.