Debt Ratios for Residential Financing
The debt to income ratio is a formula lenders use to determine how much money can be used for a monthly mortgage payment after you have met your other monthly debt payments.
About your qualifying ratio
Typically, conventional loans 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.
For 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 hazard insurance, HOA dues, PMI - everything that makes up the full payment.
The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, etcetera.
For example:
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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
Primemax Mortgage Group, NMLS#195523 can walk you through the pitfalls of getting a mortgage. Call us at 2565439211.