Debt Ratios for Home Financing
The ratio of debt to income is a formula lenders use to determine how much of your income is available for your monthly home loan payment after you have met your various other monthly debt payments.
Understanding the qualifying ratio
For the most part, conventional loans need 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 percentage of your gross monthly income that can be applied to housing costs (including loan principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes things like auto payments, child support and credit card payments.
For example:
28/36 (Conventional)
- 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 run your own numbers, use this Loan Pre-Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.
At VSI Home Lending, we answer questions about qualifying all the time. Give us a call at 2603382561.