Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts are paid.
About your qualifying ratio
For the most part, conventional loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that makes up the full payment.
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes things like auto payments, child support and credit card payments.
Some example data:
- 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, feel free to use our superb Loan Qualification Calculator.
Remember these are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how much you can afford.
At Abbey Mortgage, we answer questions about qualifying all the time. Give us a call at 352-369-4200.