Debt Ratios for Home Financing

The debt to income ratio is a tool lenders use to calculate how much of your income can be used for your monthly mortgage payment after all your other recurring debts have been fulfilled.

Understanding your qualifying ratio

Usually, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.

The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes things like car payments, child support and monthly credit card payments.

Examples:

With a 28/36 qualifying ratio

  • 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 calculate pre-qualification numbers with your own financial data, we offer a Loan Pre-Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We will be thrilled to go over pre-qualification to determine how much you can afford.

Executive Lending Group, LLC can answer questions about these ratios and many others. Give us a call at (816) 525-8000 & (81.

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