Debt Ratios for Home Financing
Your ratio of debt to income is a formula lenders use to calculate how much of your income can be used for your monthly home loan payment after all your other monthly debts are fulfilled.
About the qualifying ratio
For the most part, conventional loans require 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 percentage of gross monthly income that can be spent on housing (this includes loan principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes things like car loans, child support and monthly credit card payments.
For example:
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'd like to run your own numbers, we offer a Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
At One Source Lending , we answer questions about qualifying all the time. Give us a call at 3032207500.