Debt Ratios for Home Financing
The ratio of debt to income is a formula lenders use to calculate how much money can be used for your monthly home loan payment after you meet your various other monthly debt payments.
How to figure your qualifying ratio
In general, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 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 costs (this includes loan principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes car payments, child support and monthly credit card payments.
For example:
A 28/36 qualifying ratio
- 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, use this Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be happy to go over pre-qualification to determine how much you can afford.
Augusta Mortgage Solutions can answer questions about these ratios and many others. Give us a call: 7068605514.