Debt Ratios for Home Financing
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Your ratio of debt to income is a formula lenders use to calculate how much money can be used for your monthly home loan payment after you meet your various other monthly debt payments.
How to figure your qualifying ratio
Typically, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto payments, child support, and the like.
Some example data:
With a 28/36 ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 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 Mortgage Qualification Calculator.
Remember these ratios are just guidelines. We will be happy to pre-qualify you to help you figure out how large a mortgage loan you can afford.
Inlet Mortgage Corporation can walk you through the pitfalls of getting a mortgage. Give us a call: 561-792-4323.