Debt Ratios for Home Lending
The ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly home loan payment after you have met your other monthly debt payments.
Understanding the qualifying ratio
Usually, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, and the like.
Some example data:
28/36 (Conventional)
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our superb Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these are only guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.
Amity Mortgage LLC can answer questions about these ratios and many others. Give us a call at 2037296681.