Debt Ratios for Home Financing

Your ratio of debt to income is a formula lenders use to determine how much of your income is available for a monthly home loan payment after all your other monthly debt obligations have been met.

Understanding the qualifying ratio

Most conventional mortgages require 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 amount (as a percentage) of your gross monthly income that can be spent on housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, auto loans, child support, and the like.

Examples:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, use this Mortgage Qualifying Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.

New Millennium Mortgage Co. NMLS: 331173 can answer questions about these ratios and many others. Give us a call at (941) 366-5800.

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