Debt Ratios for Home Lending
The ratio of debt to income is a formula lenders use to determine how much money can be used for your monthly home loan payment after you have met your other monthly debt payments.
Understanding the qualifying ratio
For the most part, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, 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 (this includes loan principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. Recurring debt includes things like car payments, child support and credit card payments.
Examples:
With a 28/36 qualifying ratio
- 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, please use this Mortgage Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be happy to help you pre-qualify to 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: 405-513-7700.