Debt Ratios for Home Lending
The ratio of debt to income is a tool lenders use to determine how much of your income is available for a monthly mortgage payment after you have met your various other monthly debt payments.
Understanding your qualifying ratio
Typically, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes payments on credit cards, vehicle payments, child support, etcetera.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our superb Mortgage Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be happy to help you pre-qualify to determine how much you can afford.
Harbor View Lending* a DBA of Megastar Financial can answer questions about these ratios and many others. Give us a call at (207) 571-8034.