Debt Ratios for Home Lending
The ratio of debt to income is a tool lenders use to determine how much money is available for your monthly home loan payment after you have met your other monthly debt payments.
Understanding the qualifying ratio
Typically, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, taxes, and HOA 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 things like auto payments, child support and monthly credit card payments.
Examples:
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'd like to run your own numbers, we offer a Mortgage Qualifying Calculator.
Guidelines Only
Remember these are just guidelines. We will be thrilled to pre-qualify you to help you determine how much you can afford.
Mortgage Headquarters of Missouri, Inc can answer questions about these ratios and many others. Call us at 5733029990.