Debt Ratios for Residential Financing

The debt to income ratio is a formula lenders use to determine how much money is available for a monthly mortgage payment after you have met your other monthly debt payments.

Understanding your qualifying ratio

For the most part, conventional mortgage loans require 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.

In these ratios, 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, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.

The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. Recurring debt includes vehicle loans, child support and monthly credit card payments.

Examples:

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 want to run your own numbers, feel free to use our superb Loan Qualifying Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.

VSI Home Lending can answer questions about these ratios and many others. Call us at 2603382561.

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