Debt Ratios for Residential Financing
The ratio of debt to income is a tool lenders use to determine how much money can be used for your monthly mortgage payment after all your other recurring debts are met.
Understanding the qualifying ratio
In general, conventional loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, and the like.
Some example data:
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 want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be happy to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
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Company NMLS # 303440 can walk you through the pitfalls of getting a mortgage. Call us: 5122916100.