Debt Ratios for Home Lending
The debt to income ratio is a formula lenders use to calculate how much of your income can be used for your monthly home loan payment after all your other monthly debt obligations have been fulfilled.
About your qualifying ratio
Typically, conventional mortgage 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) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes auto payments, child support and monthly credit card payments.
With a 28/36 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 want to calculate pre-qualification numbers with your own financial data, please use this Mortgage Loan Qualifying Calculator.
Don't forget these are only guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
Refresh Funding can walk you through the pitfalls of getting a mortgage. Call us: 305-800-3863.