Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts have been paid.
Understanding your qualifying ratio
Typically, conventional mortgage 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 gross monthly income that can be applied to housing (including mortgage principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 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 superb Mortgage Pre-Qualifying Calculator.
Just Guidelines
Don't forget these are just guidelines. We will be happy to help you pre-qualify to help you determine how large a mortgage loan you can afford.
Mortgage Headquarters of Missouri, Inc can walk you through the pitfalls of getting a mortgage. Call us: 5733029990.