Debt Ratios for Home Lending
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
Most underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (this includes principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like vehicle payments, child support and credit card payments.
Some example data:
With a 28/36 qualifying 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'd like to run your own numbers, we offer a Loan Qualification Calculator.
Don't forget these are just guidelines. We'd be thrilled to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
Alternative Mortgage Group can answer questions about these ratios and many others. Give us a call at 561-395-4264.