Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts have been paid.
About your qualifying ratio
Usually, underwriting for conventional loans needs 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.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (including mortgage principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes things like car loans, child support and credit card payments.
Examples:
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 want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Pre-Qualifying Calculator.
Just Guidelines
Remember these are just guidelines. We will be happy to help you pre-qualify to determine how large a mortgage you can afford.
Amity Mortgage LLC can walk you through the pitfalls of getting a mortgage. Give us a call at 2037296681.