Debt Ratios for Residential Lending
The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after you meet your various other monthly debt payments.
How to figure your qualifying ratio
For the most part, conventional loans need 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 percentage of gross monthly income that can be spent on housing (this includes loan principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. Recurring debt includes things like car loans, child support and monthly credit card payments.
Some example data:
With a 28/36 qualifying ratio
- 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 want to run your own numbers, please use this Loan Qualifying Calculator.
Guidelines Only
Remember these are just guidelines. We will be happy to pre-qualify you to determine how large a mortgage you can afford.
Wize Mortgage LLC can answer questions about these ratios and many others. Call us: .