Debt Ratios for Residential Financing
The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly home loan payment after all your other recurring debts have been met.
Understanding your qualifying ratio
For the most part, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes auto/boat payments, child support and credit card payments.
A 28/36 qualifying ratio
- 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 want to run your own numbers, please use this Mortgage Pre-Qualifying Calculator.
Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to determine how large a mortgage you can afford.
Augusta Mortgage Solutions can answer questions about these ratios and many others. Call us at 7068605514.