Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring loans.
About your qualifying ratio
Typically, conventional loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (this includes principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes payments on credit cards, vehicle payments, child support, etcetera.
Examples:
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 want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Mortgage Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
Nationwide Home Loans can walk you through the pitfalls of getting a mortgage. Call us at 5626935048.