Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other recurring debts.
Understanding your qualifying ratio
For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
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 homeowners' insurance, HOA dues, PMI - everything that makes up the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, etcetera.
Examples:
A 28/36 qualifying 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'd like to run your own numbers, use this Loan Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
Pacificwide Lending can walk you through the pitfalls of getting a mortgage. Call us: 9254610500.