Debt Ratios for Home Lending

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Your ratio of debt to income is a formula lenders use to calculate how much money is available for a monthly home loan payment after all your other recurring debt obligations are met.

Understanding your qualifying ratio

Most underwriting for conventional mortgages 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 gross monthly income that can go to housing (this includes principal and interest, private mortgage insurance, hazard 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 together. Recurring debt includes vehicle loans, child support and credit card payments.

Examples:

With a 28/36 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 want to run your own numbers, feel free to use our superb Mortgage Loan Pre-Qualifying Calculator.

Just Guidelines

Remember these are only guidelines. I would be thrilled to go over pre-qualification figures to help you determine how much you can afford.

Best Capital Funding can answer questions about these ratios and many others. Give us a call at 800-506-0632.