Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.
How to figure the qualifying ratio
Typically, underwriting for conventional 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) qualifying ratio.
In these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.
Some example data:
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 run your own numbers, feel free to use our superb Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.
Wize Mortgage LLC can walk you through the pitfalls of getting a mortgage. Give us a call: .