Debt Ratios for Home Financing

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Debt Ratios for Home Financing

HOME FINANCING DEBT RATIOS

The ratio of debt to income is a tool lenders use to determine how much money is available for a monthly mortgage payment after all your other monthly debt obligations are met.

About the qualifying ratio

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

For these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners’ insurance, homeowners’ dues, Private Mortgage Insurance – everything that makes up the full payment.

The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, and the like. For example:

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 plushousing 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 plushousing expenses

If you’d like to calculate pre-qualification numbers on your own income and expenses, feel free to use our Mortgage Qualification Calculator (/CalcQualifier.x).

Don’t forget these are just guidelines. We’d be happy to help you pre-qualify to help you determine how large a mortgage you can afford. Bluestar Mortgage Inc. can answer questions about these ratios and many others.

Call us at 847-230-4030 or email us at loans@bluestarhm.com.