Debt Ratios for Residential Financing
Your debt to income ratio is a tool lenders use to determine how much of your income is available for a monthly mortgage payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
Usually, conventional loans need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes things like car payments, child support and credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Qualification Calculator.
Guidelines Only
Remember these are only guidelines. We will be happy to pre-qualify you to help you figure out how much you can afford.
At New Millennium Mortgage Co. NMLS: 331173, we answer questions about qualifying all the time. Call us: (941) 366-5800.