Debt Ratios for Home Financing
The debt to income ratio is a tool lenders use to determine how much money is available for a monthly mortgage payment after all your other monthly debt obligations are met.
Understanding the 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.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt together. Recurring debt includes vehicle loans, child support and monthly credit card payments.
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 calculate pre-qualification numbers on your own income and expenses, feel free to use our Loan Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.
Norcal Capital Group, Inc can answer questions about these ratios and many others. Call us at 6507631924.