Debt Ratios for Residential Financing
Your ratio of debt to income is a tool lenders use to calculate how much money can be used for your monthly mortgage payment after you meet your other monthly debt payments.
About your qualifying ratio
For the most part, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
For 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 hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, and the like.
Some example data:
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, please use this Mortgage Loan Pre-Qualification Calculator.
Don't forget these are just guidelines. We'd be happy to pre-qualify you to determine how much you can afford.
Reliance Mortgage Service, Inc can walk you through the pitfalls of getting a mortgage. Call us: 5623200510.