Understanding Your Debt Ratios For Home Mortgage Lending
Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other recurring debt obligations are fulfilled.
About your qualifying ratio
For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing costs (this includes principal and interest, PMI, hazard insurance, property taxes, and homeowners’ association dues).
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.
Some example data:
With a 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
Don’t forget these are just guidelines. We’d be happy to go over pre-qualification to help you determine how large a mortgage you can afford.
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