Debt Ratios for Home Lending
Your debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other recurring debt obligations are fulfilled.
Understanding your qualifying ratio
Usually, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (including mortgage 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 applied to housing expenses and recurring debt together. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
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 want to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Qualification Calculator.
Don't forget these are just guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
Chris Caggiano - Grand Oaks Funding, LLC can walk you through the pitfalls of getting a mortgage. Give us a call: (718) 477-4405.