Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
How to figure the qualifying ratio
Typically, 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) ratio.
The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, and the like.
Examples:
With a 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.
At Executive Lending Group, LLC, we answer questions about qualifying all the time. Call us: 8165258000.