Debt Ratios for Residential Lending
The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly home loan payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
Most 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) 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 homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes payments on credit cards, auto payments, child support, and the like.
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 want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.
VSI Home Lending can answer questions about these ratios and many others. Give us a call at (260) 338-2561.