Debt Ratios for Residential Financing

Your ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly home loan payment after all your other monthly debts have been met.

Understanding your qualifying ratio

Typically, conventional mortgages need 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 is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.

The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, etcetera.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Loan Pre-Qualification Calculator.

Guidelines Only

Remember these are only guidelines. We will be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.

At VSI Home Lending, we answer questions about qualifying all the time. Give us a call at 2603382561.

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