Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts are paid.
How to figure your qualifying ratio
Typically, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little 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 be applied to housing (including loan principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes things like auto payments, child support and monthly credit card payments.
Examples:
With a 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, please use this Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be happy to help you pre-qualify to help you determine how large a mortgage you can afford.
New Millennium Mortgage Co. NMLS: 331173 can walk you through the pitfalls of getting a mortgage. Call us at (941) 366-5800.