Debt Ratios for Home Lending
Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after all your other monthly debt obligations are fulfilled.
About the qualifying ratio
Most underwriting for conventional loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
In these ratios, 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, homeowners' dues, PMI - everything that constitutes the payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto/boat loans, child support, and the like.
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 want to run your own numbers, feel free to use our very useful Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.
Coastal Mortgage Corp. can answer questions about these ratios and many others. Call us at 504-866-5626.