Debt Ratios for Home Lending

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Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly debts.

Understanding your qualifying ratio

Most underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (including loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes credit card payments, vehicle 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, use this Mortgage Pre-Qualifying Calculator.

Remember these are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford. Dalton Mortgage Group can answer questions about these ratios and many others. Give us a call: 405.823.5961.

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