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 are paid.
About your qualifying ratio
In general, underwriting for conventional 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 costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
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. Recurring debt includes auto loans, child support and credit card payments.
Some example data:
- 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'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualification Calculator.
Don't forget these ratios are only guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Ward Kilduff Mortgage can walk you through the pitfalls of getting a mortgage. Call us at (860) 658-7100.
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