Debt Ratios for Home Lending
The debt to income ratio is a tool lenders use to calculate how much of your income can be used for a monthly mortgage payment after all your other recurring debt obligations have been fulfilled.
Understanding your qualifying ratio
In general, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, car payments, child support, and the like.
Some example data:
A 28/36 qualifying 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 want to run your own numbers, we offer a Loan Qualification Calculator.
Don't forget these are just guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
Capacity Lending, LLC can walk you through the pitfalls of getting a mortgage. Give us a call: 469-640-0400.