Debt Ratios for Residential Financing

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other recurring loans.

Understanding your qualifying ratio

For the most part, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing (including mortgage principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto payments, child support, and the like.

Examples:

With a 28/36 ratio

• Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
• Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
• Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Pre-Qualification Calculator.

Just Guidelines

Remember these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.

CHASE MORTGAGE, Inc. #317430 can walk you through the pitfalls of getting a mortgage. Call us at 4357556622.