Debt Ratios for Home Financing
The debt to income ratio is a tool lenders use to calculate how much of your income can be used for your monthly mortgage payment after all your other recurring debts have been met.
Understanding your qualifying ratio
For the most part, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 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. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt. Recurring debt includes auto loans, child support and monthly credit card payments.
- 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
If you want to run your own numbers, we offer a Loan Qualification Calculator.
Don't forget these are just guidelines. We will be thrilled to pre-qualify you to help you determine how much you can afford.