Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.
About the qualifying ratio
Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.
- 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 want to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Loan Qualifying Calculator.
Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.
At Alerus Mortgage, we answer questions about qualifying all the time. Call us at 952 417 8481.