Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you've paid your other monthly loans.
Understanding the qualifying ratio
Most underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
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 what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, auto loans, child support, and the like.
A 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our Loan Qualification Calculator.
Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage you can afford.
Statewide Funding can walk you through the pitfalls of getting a mortgage. Give us a call at (415) 456-7802.