Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other monthly loans.
How to figure the qualifying ratio
Typically, 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) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, auto loans, child support, and the like.
- 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 calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Loan Qualification Calculator.
Don't forget these are only guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
Firelight Mortgage Consultants can walk you through the pitfalls of getting a mortgage. Call us: 3032282254.