Debt Ratios for Residential Lending
Your ratio of debt to income is a formula lenders use to calculate how much of your income is available for your monthly home loan payment after you have met your other monthly debt payments.
How to figure your qualifying ratio
Usually, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, etcetera.
With a 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Loan Qualification Calculator.
Don't forget these are only guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
At Custom Lending Group, we answer questions about qualifying all the time. Give us a call at (707) 252-2700.