Debt Ratios for Home Financing
The debt to income ratio is a formula lenders use to determine how much of your income can be used for your monthly mortgage payment after all your other monthly debt obligations are fulfilled.
Understanding the qualifying ratio
Typically, 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) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing (this includes loan principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car payments, child support, and the like.
Some example data:
With 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.
Remember these are only guidelines. We will be happy to pre-qualify you to determine how much you can afford.
Abbey Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 352-369-4200.