Debt Ratios for Residential Financing

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Your debt to income ratio is a tool lenders use to determine how much money can be used for a monthly mortgage payment after all your other monthly debt obligations have been met.

Understanding your qualifying ratio

Usually, 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) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, et cetera.

Examples:

With a 28/36 qualifying ratio

  • 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 want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Pre-Qualifying Calculator.

Don't forget these ratios are just guidelines. We'd be happy to help you pre-qualify to help you determine how much you can afford. At Gold Medal Mortgage, Inc., we answer questions about qualifying all the time. Give us a call at 440-934-2100.



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