Debt Ratios for Residential Financing
Your debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly home loan payment after you have met your other monthly debt payments.
How to figure your qualifying ratio
Usually, conventional loans require 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 go to housing (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt together. Recurring debt includes things like auto loans, child support and monthly credit card payments.
Some example data:
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, feel free to use our very useful Loan Qualification Calculator.
Remember these are only guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.
Financial Edge Mortgage Corp. can answer questions about these ratios and many others. Call us at 425-508-9988.
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