Debt Ratios for Residential Lending
The ratio of debt to income is a tool lenders use to determine how much money is available for a monthly mortgage payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
In general, conventional loans need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number in the ratio is what percent of your gross income every month that should be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, etcetera.
Examples:
28/36 (Conventional)
- 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, feel free to use our superb Mortgage Qualification Calculator.
Just Guidelines
Remember these are only guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
Augusta Mortgage Solutions can walk you through the pitfalls of getting a mortgage. Give us a call: 7068605514.