Debt Ratios for Residential Financing
The ratio of debt to income is a formula lenders use to calculate how much money can be used for your monthly home loan payment after you meet your other monthly debt payments.
Understanding your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. Recurring debt includes credit card payments, vehicle payments, child support, etcetera.
Examples:
With a 28/36 ratio
- 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 want to run your own numbers, use this Loan Qualification Calculator.
Just Guidelines
Remember these are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.
Bright Vision Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at 9043423622.