Debt Ratios for Home Lending
Your debt to income ratio is a tool lenders use to calculate how much money is available for a monthly mortgage payment after all your other monthly debt obligations have been met.
About your qualifying ratio
Usually, conventional loans need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes credit card payments, auto/boat loans, child support, and the like.
For example:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our superb Loan Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.
Price Mortgage Group LLC can answer questions about these ratios and many others. Give us a call at 405-513-7700.