Debt Ratios for Home Financing
The debt to income ratio is a tool lenders use to calculate how much money is available for your monthly mortgage payment after you meet your other monthly debt payments.
About your qualifying ratio
Usually, underwriting for conventional mortgages 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.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (including principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. Recurring debt includes credit card payments, vehicle payments, child support, etcetera.
- 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 want to run your own numbers, we offer a Mortgage Pre-Qualifying Calculator.
Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage you can afford.
First Southeast Mortgage Corporation can answer questions about these ratios and many others. Call us: 954.920.9799.