Debt Ratios for Residential Lending

Your debt to income ratio is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other recurring debt obligations are fulfilled.

Understanding your qualifying ratio

Usually, 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 hazard insurance, HOA dues, PMI - everything.

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 loans, child support, and the like.

Examples:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualifying Calculator.

Just Guidelines

Remember these ratios are just guidelines. We'd be thrilled to help you pre-qualify to help you determine how much you can afford.

Abbey Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 352-369-4200.

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