Debt Ratios for Residential Financing
Your ratio of debt to income is a formula lenders use to determine how much money is available for your monthly mortgage payment after you have met your various other monthly debt payments.
How to figure your qualifying ratio
Most 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) ratio.
For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto payments, child support, etcetera.
For example:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 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.
Guidelines Only
Don't forget these ratios are just guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.
Pacificwide Lending can answer questions about these ratios and many others. Call us at 9254610500.