Debt Ratios for Residential Lending
Your debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly home loan payment after you meet your various other monthly debt payments.
About 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.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.
Examples:
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 with your own financial data, feel free to use our very useful Loan Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
New Millennium Mortgage Co. NMLS: 331173 can answer questions about these ratios and many others. Call us: (941) 366-5800.