Debt Ratios for Residential Financing
Your ratio of debt to income is a tool lenders use to calculate how much money can be used for your monthly home loan payment after all your other recurring debt obligations have been fulfilled.
How to figure the qualifying ratio
Typically, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto/boat payments, child support, and the like.
Examples:
With a 28/36 qualifying ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our very useful Mortgage Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be happy to pre-qualify you to help you figure out how much you can afford.
Augusta Mortgage Solutions can answer questions about these ratios and many others. Give us a call: 7068605514.