Debt Ratios for Home Financing
Your ratio of debt to income is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after all your other recurring debts have been fulfilled.
About your qualifying ratio
In general, conventional 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.
In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes car payments, child support and credit card payments.
Some example data:
With 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 want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualification Calculator.
Remember these are only guidelines. We will be happy to go over pre-qualification to help you figure out how much you can afford.
Harbor View Lending* a DBA of Megastar Financial can answer questions about these ratios and many others. Call us: (207) 571-8034.