Debt Ratios for Home Financing
The debt to income ratio is a tool lenders use to determine how much money can be used for your monthly home loan payment after you meet your other monthly debt payments.
Understanding the qualifying ratio
For the most part, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, auto loans, child support, etcetera.
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Qualification Calculator.
Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.
Cal Coast Financial Corp can walk you through the pitfalls of getting a mortgage. Give us a call: (510) 683-9850.
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