Debt Ratios for Residential Financing
Your debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly mortgage payment after you meet your various other monthly debt payments.
About the qualifying ratio
In general, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For 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 hazard insurance, HOA dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. Recurring debt includes car payments, child support and monthly 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 want to run your own numbers, feel free to use our very useful Loan Qualifying Calculator.
Guidelines Only
Remember these are only guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.
At VSI Home Lending, we answer questions about qualifying all the time. Give us a call at 2603382561.