Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other recurring debts.
About your qualifying ratio
Usually, 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 gross monthly income that can be applied to housing (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes things like auto payments, child support and credit card payments.
With a 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our Loan Qualification Calculator.
Remember these ratios are just guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.
Firelight Mortgage Consultants can walk you through the pitfalls of getting a mortgage. Give us a call at 3032282254.