Debt Ratios for Home Financing
Your debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly mortgage payment after all your other recurring debts have been fulfilled.
About your qualifying ratio
Usually, underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes things like auto payments, child support and credit card payments.
Some example data:
- 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, we offer a Mortgage Pre-Qualification Calculator.
Don't forget these are just guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
PREMIERE MORTGAGE SERVICES, INC. can answer questions about these ratios and many others. Give us a call: 978-422-2311.