Debt Ratios for Residential Financing
The ratio of debt to income is a tool lenders use to calculate how much of your income can be used for a monthly mortgage payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
Typically, conventional mortgages require 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 is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes things like auto loans, child support and monthly credit card payments.
Some example data:
A 28/36 qualifying ratio
- 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 want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Mortgage Loan Qualification Calculator.
Remember these are only guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
Augusta Mortgage Solutions can walk you through the pitfalls of getting a mortgage. Call us: 7068605514.