Debt Ratios for Residential Lending

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Your ratio of debt to income is a formula lenders use to calculate how much money is available for your monthly home loan payment after you have met your various other monthly debt payments.

Understanding the qualifying ratio

In general, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

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 hazard insurance, homeowners' dues, PMI - everything.

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt. Recurring debt includes auto payments, child support and credit card payments.

Examples:

28/36 (Conventional)

  • 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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Pre-Qualifying Calculator.

Remember these are just guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage you can afford. First Funding can answer questions about these ratios and many others. Give us a call: (408) 540-0200.

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