Debt Ratios for Home Lending

Your debt to income ratio is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other recurring debts have been met.

Understanding the qualifying ratio

In general, conventional loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes car loans, child support and monthly credit card payments.

Examples:

With 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 want to run your own numbers, we offer a Mortgage Pre-Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.

The Reen Team at Direct Mortgage Funding can answer questions about these ratios and many others. Give us a call: 4086261879.