Debt Ratios for Residential Lending
Your debt to income ratio is a tool lenders use to determine how much of your income is available for a monthly mortgage payment after all your other monthly debts are fulfilled.
About your qualifying ratio
For the most part, 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) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing costs (this includes principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.
Some example data:
With a 28/36 qualifying ratio
- 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 want to calculate pre-qualification numbers with your own financial data, we offer a Loan Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
Mortgage Headquarters of Missouri, Inc can answer questions about these ratios and many others. Give us a call: 5733029990.