Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other monthly loans.
How to figure the qualifying ratio
Usually, underwriting for conventional mortgages needs 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 percentage of gross monthly income that can go to housing (including mortgage 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 applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto payments, child support, etcetera.
Some example data:
28/36 (Conventional)
- 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 calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
Augusta Mortgage Solutions can walk you through the pitfalls of getting a mortgage. Give us a call: 7068605514.