Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts have been paid.
About the qualifying ratio
Usually, underwriting for conventional loans needs 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 amount (as a percentage) of gross monthly income that can be applied to housing (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Mortgage Qualifying Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We'd be thrilled to go over pre-qualification to help you figure out how much you can afford.
Augusta Mortgage Solutions can answer questions about these ratios and many others. Give us a call at 7068605514.