Debt Ratios for Residential Financing
The ratio of debt to income is a tool lenders use to determine how much money can be used for your monthly mortgage payment after you meet your other monthly debt payments.
How to figure the qualifying ratio
Usually, conventional mortgage loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying 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 (including mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes things like vehicle payments, child support and credit card payments.
For example:
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 want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Mortgage Qualification Calculator.
Just Guidelines
Remember these ratios are only guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Riviera Funding NMLS#861382 CA DRE Broker #01186669 can answer questions about these ratios and many others. Give us a call at 3103737406.