Debt Ratios for Residential Lending
Your ratio of debt to income is a tool lenders use to calculate how much of your income is available for a monthly mortgage payment after all your other recurring debts are fulfilled.
Understanding the qualifying ratio
Usually, underwriting for conventional mortgages requires 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 percentage of your gross monthly income that can be spent on housing costs (including loan principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, 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 run your own numbers, please use this Mortgage Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.
At VSI Home Lending, we answer questions about qualifying all the time. Call us: 2603382561.