What’s the Ideal Debt-to-Income Ratio for Mortgages?
Ideal Debt-to-Income Ratio for Mortgages
While 43% is the maximum debt-to-income ratio set by FHA guidelines for homebuyers, you could benefit from having a lower ratio. The ideal debt-to-income ratio for aspiring homeowners is at or below 36%.
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Per my prior post, If you make $100K, you can buy a $600K house and have a debt-to-income ratio of 36%.
This is wrong in so many ways.
1. 43% is not the maximum debt ratio. That only applies to manually underwritten loans. 95+% of loans are run through an automated underwriting system. This system allows for much higher debt ratios- up to 55% DTI depending on factors such as credit score, reserves, etc.
2. FHA loan limit, unless in a high-cost area, is $420,000.
3. A sales price of $600,000 in a non high-cost loan area would require this transaction to be treated as a Jumbo loan. Normally jumbo loans require a 20% down payment. Some lenders will allow as little as a 10% down payment depending on credit score and debt ratio.
4. Up until about 15 years ago, FHA was not he dominant player in the mortgage market. They are now, as they allow for this much higher debt to income ratios which keeps the housing market rolling.
5. Conventional loans (Freddie Mac and Fannie Mae) have a maximum debt ratio of 45%
6. You do realize these debt ratios are based on gross income, not net income.
7. To not be house poor, you should stick with the ratios that were used before 2000. Those we based off of net income not gross income. Back then, anything with over a 40-45% net income debt ratio was considered risky.
8. Please, please stop getting your information from the likes of Trulia or Zillow.
