Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts have been paid.
How to figure the qualifying ratio
In general, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the payment.
The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. Recurring debt includes vehicle loans, child support and credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, use this Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to determine how much you can afford.
Amity Mortgage LLC can walk you through the pitfalls of getting a mortgage. Call us: (203) 729-6681.