Debt Ratios for Home Financing
The ratio of debt to income is a tool lenders use to calculate how much money is available for a monthly home loan payment after all your other recurring debt obligations have been fulfilled.
How to figure your qualifying ratio
For the most part, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
For example:
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 calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We will be happy to pre-qualify you to help you determine how much you can afford.
Metro Mortgage can answer questions about these ratios and many others. Give us a call at 866-300-1550.