Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you have paid your other recurring debts.
How to figure your qualifying ratio
For the most part, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the full payment.
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, and the like.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 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
Remember these ratios are just guidelines. We will be happy to pre-qualify you to help you figure out how much you can afford.
At Sky Apply Mortgage, Inc, we answer questions about qualifying all the time. Give us a call at 8132007931.