Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you've paid your other recurring loans.
About the qualifying ratio
Usually, conventional mortgage loans require 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.
The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt. Recurring debt includes payments on credit cards, car loans, child support, etcetera.
Examples:
With a 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, use this Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be happy to pre-qualify you to determine how large a mortgage you can afford.
Pacificwide Lending can walk you through the pitfalls of getting a mortgage. Give us a call at 9254610500.