Debt Ratios for Home Financing

Your ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly mortgage payment after you have met your other monthly debt payments.

How to figure the qualifying ratio

In general, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing costs (this includes loan principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes payments on credit cards, vehicle payments, child support, and the like.

Examples:

With a 28/36 qualifying ratio

  • 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 want to run your own numbers, we offer a Loan Qualification Calculator.

Guidelines Only

Remember these are only guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.

At Pinnacle Lending Group, Inc., we answer questions about qualifying all the time. Give us a call: 7027302085.

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