Debt Ratios for Home Financing
Your debt to income ratio is a formula lenders use to calculate how much of your income can be used for your monthly mortgage payment after all your other monthly debts are met.
About the qualifying ratio
For the most part, underwriting for conventional mortgages 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 homeowners' insurance, homeowners' dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.
Examples:
28/36 (Conventional)
- 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, please use this Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be thrilled to pre-qualify you to help you determine how much you can afford.
Pacificwide Lending can answer questions about these ratios and many others. Call us at 9254610500.