Debt Ratios for Residential Financing

Your debt to income ratio is a formula lenders use to calculate how much money is available for your monthly mortgage payment after all your other monthly debt obligations are met.

How to figure your qualifying ratio

Usually, conventional loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).

The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, and the like.

Examples:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, please use this Loan Pre-Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.

At Saab Mortgage, we answer questions about qualifying all the time. Call us at 7032880777.

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