Debt Ratios for Residential Lending
Your ratio of debt to income is a formula lenders use to determine how much of your income can be used for your monthly mortgage payment after you have met your various other monthly debt payments.
Understanding the 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 (including mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes auto payments, child support and credit card payments.
For example:
A 28/36 ratio
- 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 run your own numbers, use this Mortgage Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to go over pre-qualification to determine how large a mortgage you can afford.
At Nationwide Home Loans, we answer questions about qualifying all the time. Give us a call at 5626935048.