Debt Ratios for Home Lending
The debt to income ratio is a formula lenders use to calculate how much of your income is available for a monthly home loan payment after all your other recurring debt obligations are fulfilled.
How to figure the qualifying ratio
Usually, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
For these ratios, 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, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. Recurring debt includes auto loans, child support and credit card payments.
Examples:
With a 28/36 qualifying 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'd like to run your own numbers, use this Loan Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.
Firelight Mortgage Consultants can answer questions about these ratios and many others. Call us at 3032282254.