Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other recurring loans.
How to figure your qualifying ratio
Usually, underwriting for conventional mortgage 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 percentage of your gross monthly income that can go to housing costs (this includes loan principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car payments, child support, etcetera.
Examples:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.
Sky Apply Mortgage, Inc can walk you through the pitfalls of getting a mortgage. Call us at 8132007931.