Debt Ratios for Home Financing
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Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other recurring loans.
How to figure your qualifying ratio
Usually, underwriting for conventional loans requires 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.
For these ratios, 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, PMI - everything that makes up the full payment.
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. 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 want to run your own numbers, we offer a Mortgage Loan Qualification Calculator.
Don't forget these are only guidelines. We will be happy to help you pre-qualify to determine how much you can afford.
At Mortgage Headquarters of Missouri, Inc, we answer questions about qualifying all the time. Give us a call: (573) 302-9990.