Debt Ratios for Residential Lending
Your debt to income ratio is a formula lenders use to calculate how much of your income is available for your monthly home loan payment after all your other monthly debts have been met.
Understanding your qualifying ratio
Usually, conventional mortgages need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, car loans, child support, etcetera.
Some example data:
28/36 (Conventional)
- 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 run your own numbers, we offer a Mortgage Qualification Calculator.
Just Guidelines
Remember these are only guidelines. We'd be thrilled to help you pre-qualify to help you determine how much you can afford.
ADVISORY MORTGAGE can answer questions about these ratios and many others. Give us a call: 8102292820.