Debt Ratios for Home Lending
Your debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
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 loans, child support, and the like.
A 28/36 ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 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 Mortgage Loan Qualifying Calculator.
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.
Prime Capital Mortgage Corp can answer questions about these ratios and many others. Give us a call: 248-644-1200.
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