Debt Ratios for Residential Lending
The ratio of debt to income is a tool lenders use to calculate how much money is available for your monthly home loan payment after you meet your other monthly debt payments.
How to figure your qualifying ratio
In general, conventional mortgage 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) ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that constitutes the payment.
The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.
- 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 want to run your own numbers, we offer a Loan Qualification Calculator.
Don't forget these are only guidelines. We will be thrilled to help you pre-qualify to help you determine how much you can afford.
The Mortgage Firm - Team Meyers can walk you through the pitfalls of getting a mortgage. Call us at (407) 889-4321.