Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other recurring debts.
How to figure the qualifying ratio
For the most part, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes credit card payments, car payments, child support, and the like.
For example:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be thrilled to help you pre-qualify to help you determine how large a mortgage loan you can afford.
Americn Hero Mortgage can answer questions about these ratios and many others. Give us a call: 754-202-4376.