Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts are paid.
About the qualifying ratio
For the most part, conventional mortgage loans 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 in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).
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, car loans, child support, and the like.
- 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'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Qualification Calculator.
Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.
At My Mortgage Option, we answer questions about qualifying all the time. Call us at 4693224391.