Debt Ratios for Residential Financing
The ratio of debt to income is a tool lenders use to determine how much of your income can be used for your monthly mortgage payment after you have met your other monthly debt payments.
How to figure your qualifying ratio
Usually, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt. Recurring debt includes things like auto/boat payments, child support and credit card payments.
With a 28/36 qualifying ratio
- 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 superb Mortgage Pre-Qualification Calculator.
Don't forget these are only guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage you can afford.
At Coastal Mortgage Corp., we answer questions about qualifying all the time. Give us a call: 504-866-5626.
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