Debt Ratios for Residential Lending
The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly home loan payment after all your other recurring debt obligations have been fulfilled.
Understanding your qualifying ratio
Usually, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes auto loans, child support and monthly credit card payments.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 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 Loan Qualifying Calculator.
Just Guidelines
Remember these are only guidelines. We will be happy to pre-qualify you to help you figure out how much you can afford.
1st Credential Mortgage Inc can walk you through the pitfalls of getting a mortgage. Call us: (281) 778-0805.