Debt Ratios for Home Financing

The debt to income ratio is a tool lenders use to determine how much of your income can be used for a monthly home loan payment after you meet your various other monthly debt payments.

How to figure your qualifying ratio

For the most part, conventional mortgages 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 costs (including principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

Some example data:

With a 28/36 qualifying 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'd like to run your own numbers, please use this Loan Qualifying Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.

At American Mortgage Advisers, Inc, we answer questions about qualifying all the time. Give us a call: 2148657442.

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