Debt Ratios for Home Financing

Your debt to income ratio is a tool lenders use to determine how much of your income can be used for a monthly home loan payment after all your other monthly debts are fulfilled.

Understanding the qualifying ratio

Typically, underwriting for conventional mortgage 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 the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that constitutes the full payment.

The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, car payments, child support, and the like.

Examples:

With a 28/36 ratio

  • 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'd like to run your own numbers, we offer a Loan Pre-Qualification Calculator.

Guidelines Only

Don't forget these are just guidelines. We will be thrilled to go over pre-qualification to determine how much you can afford.

At Longhorn Mortgage, we answer questions about qualifying all the time. Give us a call: 512-302-9410.

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