Debt Ratios for Home Lending
The ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly mortgage payment after you have met your other monthly debt payments.
About 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) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto/boat loans, child support, etcetera.
For example:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.
Firelight Mortgage Consultants can answer questions about these ratios and many others. Call us: 7209331025.