Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts have been paid.
How to figure the qualifying ratio
In general, conventional mortgages 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 gross monthly income that can be applied to housing (including mortgage principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes things like auto/boat loans, child support and credit card payments.
For example:
28/36 (Conventional)
- 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, feel free to use our superb Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be happy to pre-qualify you to help you determine how much you can afford.
Northeast Bancorp of America, Inc can answer questions about these ratios and many others. Call us at 4402349660.