Debt Ratios for Residential Financing
The ratio of debt to income is a tool lenders use to calculate how much money can be used for a monthly home loan payment after you have met your other monthly debt payments.
Understanding the qualifying ratio
Typically, underwriting for conventional mortgage loans needs 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 your gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, car payments, child support, etcetera.
Examples:
28/36 (Conventional)
- 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 want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We will be thrilled to help you pre-qualify to help you determine how large a mortgage you can afford.
At Todays Financing, we answer questions about qualifying all the time. Call us: 2057831113.