Debt Ratios for Home Financing

Your debt to income ratio is a tool lenders use to determine how much money is available for a monthly mortgage payment after all your other recurring debt obligations have been met.

How to figure your qualifying ratio

For the most part, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes vehicle payments, child support and monthly credit card payments.

Examples:

28/36 (Conventional)

  • 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 on your own income and expenses, use this Mortgage Loan Pre-Qualifying Calculator.

Guidelines Only

Remember these are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.

Northeast Bancorp of America, Inc. can walk you through the pitfalls of getting a mortgage. Call us: (440) 234-9660.

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