Debt Ratios for Residential Financing
The ratio of debt to income is a formula lenders use to calculate how much money is available for your monthly mortgage payment after all your other monthly debt obligations have been fulfilled.
About your qualifying ratio
Most underwriting for conventional 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 be applied to housing (this includes principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto/boat payments, child support, and the like.
For example:
With a 28/36 qualifying 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'd like to run your own numbers, feel free to use our Mortgage Loan Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be thrilled to help you pre-qualify to help you figure out how much you can afford.
Metro Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 866-300-1550.