Debt Ratios for Residential Lending
Your ratio of debt to income is a tool lenders use to determine how much money is available for your monthly mortgage payment after all your other recurring debt obligations have been fulfilled.
How to figure the qualifying ratio
Typically, underwriting for conventional mortgage 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (including principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, please use this Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.
Norcal Capital Group, Inc can answer questions about these ratios and many others. Call us at (650) 689-5684.