Debt Ratios for Residential Financing
The ratio of debt to income is a formula lenders use to calculate how much money is available for a monthly home loan payment after all your other monthly debts have been met.
Understanding your qualifying ratio
Most conventional loans require a qualifying ratio of 28/36. FHA loans are 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 spent on housing costs (including mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt together. Recurring debt includes auto/boat payments, child support and monthly credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to pre-qualify you to help you figure out how large a mortgage you can afford.
Metro Mortgage can answer questions about these ratios and many others. Call us at 866-300-1550.