Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other recurring debts.
About your qualifying ratio
For the most part, underwriting for conventional loans needs 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 spent on housing costs (this includes loan principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car payments, child support, and the like.
For example:
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 want to run your own numbers, we offer a Mortgage Loan Qualifying Calculator.
Guidelines Only
Remember these ratios are just guidelines. We will be happy to help you pre-qualify to determine how much you can afford.
Price Mortgage Group LLC can walk you through the pitfalls of getting a mortgage. Call us at 405-513-7700.