Debt Ratios for Home Lending
The debt to income ratio is a tool lenders use to determine how much of your income can be used for a monthly home loan payment after all your other monthly debts have been fulfilled.
About the qualifying ratio
Usually, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (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 homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes car loans, child support and monthly credit card payments.
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 calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Qualification Calculator.
Just Guidelines
Remember these are only guidelines. We'd be happy to help you pre-qualify to determine how large a mortgage you can afford.
Amity Mortgage LLC can answer questions about these ratios and many others. Give us a call at 2037296681.