Debt Ratios for Residential Lending
The debt to income ratio is a formula lenders use to determine how much money can be used for your monthly home loan payment after all your other recurring debts have been met.
How to figure the qualifying ratio
For the most part, conventional loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that makes up 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. Recurring debt includes credit card payments, auto payments, child support, etcetera.
Some example data:
With a 28/36 qualifying ratio
- 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 run your own numbers, feel free to use our Mortgage Loan Qualification Calculator.
Remember these are only guidelines. We will be thrilled to help you pre-qualify to help you figure out how much you can afford.
U.S.A. Lending, Inc. can walk you through the pitfalls of getting a mortgage. Give us a call at 305-967-7200.