Debt Ratios for Residential Financing

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.  How can you figure the qualifying ratio?  In general, most conventional mortgages have a qualifying ratio of 28/36.  FHA loans are a slightly less restrictive requiring a 29/41 ratio.  The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing ( this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowner's association dues).  The second number in the ratio is the maximum percentage of your gross montly income which can be applied to housing expenses and recurring debt together.  Recurring debt includes payments on credit cards, auto/boat loans, child support and the like.  To give you an example for a conventional loan using the 28/36 ratio, Gross Monthly Income of $6500 x .28=$1,820 can be applied to housing.
Gross Monthly Income of $6500 x .36 = $2,340 can be applied to recurring debt plus housing expenses.  An example for an FHA loan with a 29/41 qualifying ratio, Gross Monthly Income $6,500 x .29=$1,885 can be applied to housing. Gross Monthly Income $6,500 x .41=$2,665 can be applied to recurring debt plus housing expenses. Remember; however, that these are just guidelines. Joe Costa would be happy to help you pre-qualify to help you determine how much you can afford. At San Diego's Park Place Financial Group we answer questions about qualifying all of the time. Call us at (858) 764-2583 to answer any of  your questions or check out our website at www.parkplacefg.com and apply for a loan online.