Debt Ratios for Residential Financing
Your debt to income ratio is a tool lenders use to calculate how much money is available for your monthly mortgage payment after all your other monthly debts have been fulfilled.
About 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) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing costs (including loan principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes things like auto loans, child support and credit card payments.
Examples:
28/36 (Conventional)
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Loan Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
VSI Home Lending can answer questions about these ratios and many others. Give us a call: 2603382561.