Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other monthly debts.
Understanding your qualifying ratio
Usually, underwriting for conventional loans 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 amount (as a percentage) of your gross monthly income that can go to housing (including mortgage principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.
Some example data:
With a 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our Mortgage Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these are just guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Sky Apply Mortgage, Inc can answer questions about these ratios and many others. Give us a call: 8132007931.