Debt Ratios for Residential Financing
Your ratio of debt to income is a tool lenders use to determine how much money can be used for your monthly home loan payment after you have met your various other monthly debt payments.
Understanding your qualifying ratio
Usually, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, etcetera.
- 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'd like to run your own numbers, we offer a Mortgage Pre-Qualification Calculator.
Remember these ratios are just guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.
Saab Mortgage can answer questions about these ratios and many others. Call us at 7032880777.