Debt Ratios for Home Financing
Your ratio of debt to income is a formula lenders use to calculate how much money is available for a monthly home loan payment after you meet your various other monthly debt payments.
How to figure your qualifying ratio
Typically, conventional mortgages require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing costs (including principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes auto/boat payments, child support and monthly credit card payments.
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 want to run your own numbers, we offer a Loan Pre-Qualification Calculator.
Remember these are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.
Ward Kilduff Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: (860) 658-7100.
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