Debt Ratios for Residential Financing
The debt to income ratio is a tool lenders use to calculate how much money can be used for a monthly home loan payment after you meet your other monthly debt payments.
How to figure the qualifying ratio
For the most part, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
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, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.
For example:
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 Mortgage Loan Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
VSI Home Lending can walk you through the pitfalls of getting a mortgage. Give us a call: 2603382561.