Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts are paid.
About your qualifying ratio
Usually, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are less strict, 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 applied to housing (including principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes car payments, child support and credit card payments.
For example:
A 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be happy to help you pre-qualify to determine how much you can afford.
Americn Hero Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 754-202-4376.