Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other recurring debts.
How to figure your qualifying ratio
In general, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 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, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, and the like.
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 calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Loan Qualifying Calculator.
Remember these ratios are only guidelines. We will be happy to go over pre-qualification to help you figure out how much you can afford.
VSI Home Lending can walk you through the pitfalls of getting a mortgage. Call us: (260) 338-2561.