Debt Ratios for Residential Financing
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 debt obligations are met.
How to figure your qualifying ratio
For the most part, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, auto payments, child support, and the like.
For example:
A 28/36 qualifying 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'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualifying Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be thrilled to go over pre-qualification to determine how large a mortgage you can afford.
Mortgage Headquarters of Missouri, Inc can walk you through the pitfalls of getting a mortgage. Give us a call: 5733029990.