Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other monthly debts.
Understanding your qualifying ratio
Most conventional loans require 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 gross monthly income that can go to housing (this includes principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes auto loans, child support and credit card payments.
Some example data:
With 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, we offer a Mortgage Loan Qualification Calculator.
Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.
America's Money Source can walk you through the pitfalls of getting a mortgage. Give us a call at 4078987559.