Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts are paid.
About your qualifying ratio
In general, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (this includes mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes vehicle loans, child support and monthly credit card payments.
Examples:
With a 28/36 qualifying ratio
- 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'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be happy to help you pre-qualify to help you determine how large a mortgage loan you can afford.
At Amity Mortgage LLC, we answer questions about qualifying all the time. Give us a call: 2037296681.