Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you've paid your other monthly loans.
Understanding your qualifying ratio
In general, conventional mortgages need 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 percentage of gross monthly income that can be spent on housing costs (this includes loan principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).
The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Mortgage Pre-Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) can answer questions about these ratios and many others. Give us a call: 214-300-8756.