Debt Ratios for Residential Financing
The ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly mortgage payment after all your other monthly debts are met.
How to figure your qualifying ratio
In general, underwriting for conventional mortgages needs 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 percentage of gross monthly income that can be spent on housing costs (including loan principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes things like car payments, child support and monthly credit card payments.
Some example data:
With a 28/36 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 want to run your own numbers, we offer a Mortgage Pre-Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We will be happy to go over pre-qualification to help you figure out how much you can afford.
Secure Mortgage Company can walk you through the pitfalls of getting a mortgage. Call us: (713) 667-5472.