Debt Ratios for Home Financing

The debt to income ratio is a formula lenders use to determine how much money can be used for your monthly mortgage payment after all your other monthly debt obligations have been met.

Understanding your qualifying ratio

Typically, 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.

In these ratios, 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 homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes things like auto loans, child support and credit card payments.

For example:

A 28/36 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 calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Qualifying Calculator.

Guidelines Only

Remember these are only guidelines. We will be happy to help you pre-qualify to determine how much you can afford.

VSI Home Lending can answer questions about these ratios and many others. Call us at 2603382561.

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