Debt Ratios for Residential Lending
The debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other recurring debt obligations have been met.
About your qualifying ratio
In general, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing costs (including loan principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. Recurring debt includes auto payments, child support and credit card payments.
Examples:
With a 28/36 qualifying ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Mortgage Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
At One Source Lending , we answer questions about qualifying all the time. Call us: 3032207500.