Debt Ratios for Home Financing
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts have been paid.
Understanding the qualifying ratio
Typically, conventional mortgages require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
In these ratios, 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 hazard insurance, HOA dues, PMI - everything.
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.
A 28/36 qualifying ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Loan Pre-Qualification Calculator.
Don't forget these ratios are only guidelines. We will be happy to pre-qualify you to help you figure out how large a mortgage you can afford.
At New Millennium Mortgage Co. NMLS: 331173, we answer questions about qualifying all the time. Give us a call at (941) 366-5800.
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