Debt Ratios for Home Lending
The ratio of debt to income is a tool lenders use to calculate how much money can be used for a monthly mortgage payment after all your other monthly debts are fulfilled.
Understanding your qualifying ratio
In general, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (including loan principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes things like auto loans, child support and credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, use this Mortgage Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.
At Reliance Mortgage Service, Inc, we answer questions about qualifying all the time. Give us a call: 562 320-0510.