Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly loans.
About the qualifying ratio
Usually, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
Harbor View Lending* a DBA of Megastar Financial can walk you through the pitfalls of getting a mortgage. Give us a call at (207) 571-8034.