Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts are paid.
Understanding your qualifying ratio
In general, conventional mortgages require 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 your gross monthly income that can be spent on housing costs (including mortgage principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes auto loans, child support and monthly credit card payments.
Some example data:
- 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 want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.
Remember these are only guidelines. We'd be happy to help you pre-qualify to help you determine how large a mortgage loan you can afford.
Price Mortgage Group LLC can walk you through the pitfalls of getting a mortgage. Call us at 405-513-7700.