Debt Ratios for Home Financing
Your ratio of debt to income is a tool lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other recurring debts are met.
How to figure your 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.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
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 together. Recurring debt includes car payments, child support and monthly credit card payments.
For example:
With a 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these ratios are only guidelines. We will be happy to help you pre-qualify to help you determine how large a mortgage you can afford.
AmeriBest Mortgage can answer questions about these ratios and many others. Give us a call: 3217777277.