Debt Ratios for Residential Financing
The ratio of debt to income is a tool lenders use to calculate how much money is available for your monthly mortgage payment after all your other monthly debt obligations have been met.
How to figure your qualifying ratio
Most conventional 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 percentage of gross monthly income that can be spent on housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes vehicle loans, child support and credit card payments.
Some example data:
A 28/36 ratio
- 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 with your own financial data, please use this Mortgage Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage you can afford.
At CHASE MORTGAGE, Inc. #317430, we answer questions about qualifying all the time. Give us a call at 4357556622.