Debt Ratios for Home Financing
The ratio of debt to income is a tool lenders use to determine how much money can be used for your monthly home loan payment after you have met your various other monthly debt payments.
Understanding the qualifying ratio
Typically, underwriting for conventional mortgages needs 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 homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes things like auto/boat payments, child support and credit card payments.
Some example data:
A 28/36 ratio
- 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, we offer a Mortgage Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are just guidelines. We will be thrilled to help you pre-qualify to help you determine how large a mortgage loan you can afford.
At Firelight Mortgage Consultants, we answer questions about qualifying all the time. Call us at 3032282254.