Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
Understanding the qualifying ratio
Usually, conventional mortgages need 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 gross monthly income that can go to housing costs (this includes principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, etcetera.
A 28/36 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 run your own numbers, please use this Loan Qualification Calculator.
Don't forget these are just guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage loan you can afford.
Net Equity Financial Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at (215)741-3131.