Debt Ratios for Home Financing
The debt to income ratio is a tool lenders use to determine how much of your income can be used for a monthly mortgage payment after you have met your other monthly debt payments.
How to figure your qualifying ratio
Usually, conventional mortgage 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 principal and interest, PMI, homeowner's insurance, property taxes, 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 auto/boat payments, child support and credit card payments.
For example:
With a 28/36 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 calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.
U.S.A. Lending, Inc. can answer questions about these ratios and many others. Give us a call at 305-967-7200.