Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.
About the qualifying ratio
Usually, conventional mortgages require 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 go toward housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, car payments, child support, and the like.
Some example data:
28/36 (Conventional)
- 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 with your own financial data, feel free to use our Mortgage Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
Firelight Mortgage Consultants can walk you through the pitfalls of getting a mortgage. Give us a call at 7209331025.