Debt Ratios for Residential Financing
The ratio of debt to income is a tool lenders use to calculate how much of your income is available for your monthly home loan payment after you meet your various other monthly debt payments.
About your qualifying ratio
Most conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, auto payments, child support, etcetera.
Some example data:
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 run your own numbers, feel free to use our superb Mortgage Pre-Qualifying Calculator.
Just Guidelines
Don't forget these are just guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
Metro Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 866-300-1550.