Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.
Understanding the qualifying ratio
Most conventional loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, property tax, 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 together. Recurring debt includes payments on credit cards, auto/boat payments, child support, and the like.
Some example data:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage you can afford.
Price Mortgage Group LLC can walk you through the pitfalls of getting a mortgage. Give us a call: 405-513-7700.