Debt Ratios for Residential Lending
The ratio of debt to income is a tool lenders use to calculate how much money can be used for a monthly home loan payment after you meet your various other monthly debt payments.
About your qualifying ratio
Most conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes auto payments, child support and monthly credit card payments.
Some example data:
A 28/36 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 run your own numbers, feel free to use our superb Mortgage Pre-Qualification Calculator.
Guidelines Only
Remember these are only guidelines. We'd be happy to pre-qualify you to help you determine how large a mortgage you can afford.
Pacificwide Lending can answer questions about these ratios and many others. Call us: 9254610500.