Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts have been paid.
How to figure your qualifying ratio
In general, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, and the like.
Examples:
A 28/36 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 want to run your own numbers, feel free to use our superb Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you determine how much you can afford.
At Net Equity Financial Mortgage LLC, we answer questions about qualifying all the time. Call us: 2157413131.