Debt Ratios for Residential Financing
Your ratio of debt to income is a formula lenders use to calculate how much money is available for a monthly mortgage payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
In general, underwriting for conventional loans needs 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 how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. Recurring debt includes car loans, child support and monthly credit card payments.
- 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 calculate pre-qualification numbers with your own financial data, we offer a Loan Qualification Calculator.
Don't forget these are only guidelines. We will be happy to pre-qualify you to help you determine how large a mortgage you can afford.
America's Money Source can walk you through the pitfalls of getting a mortgage. Call us at (407) 898-7559.
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