Debt Ratios for Home Lending
Your ratio of debt to income is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other monthly debt obligations have been met.
About your qualifying ratio
In general, 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 hazard insurance, HOA dues, PMI - everything that makes up the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes things like auto payments, child support and monthly credit card payments.
For example:
With a 28/36 qualifying ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, use this Mortgage Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be happy to pre-qualify you to help you figure out how large a mortgage you can afford.
Amity Mortgage LLC can answer questions about these ratios and many others. Give us a call: 2037296681.