Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.
How to figure the qualifying ratio
Most conventional mortgages require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
In these ratios, 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.
The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, and the like.
A 28/36 qualifying ratio
- 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, feel free to use our very useful Loan Pre-Qualification Calculator.
Remember these are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how much you can afford.
Americn Hero Mortgage can answer questions about these ratios and many others. Give us a call: 754-202-4376.