Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts are paid.
How to figure the qualifying ratio
Usually, conventional loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
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 things like auto payments, child support and monthly credit card payments.
Examples:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our Mortgage Loan Qualifying Calculator.
Guidelines Only
Remember these are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.
At America's Money Source, we answer questions about qualifying all the time. Call us: 4078987559.