Debt Ratios for Residential Financing
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 you have met your various other monthly debt payments.
About the qualifying ratio
Typically, conventional mortgages require 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.
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, homeowners' dues, PMI - everything that constitutes 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 together. Recurring debt includes car loans, child support and monthly credit card payments.
Examples:
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, we offer a Loan Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage loan you can afford.
Greystone Loans, Inc. can walk you through the pitfalls of getting a mortgage. Call us: 9094671090.