Debt Ratios for Home Financing
The ratio of debt to income is a tool lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other monthly debts are fulfilled.
About the qualifying ratio
For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the full payment.
The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. Recurring debt includes auto loans, child support and credit card payments.
For example:
28/36 (Conventional)
- 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, use this Loan Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We will be happy to help you pre-qualify to determine how much you can afford.
Americn Hero Mortgage can answer questions about these ratios and many others. Give us a call at 754-202-4376.