Debt Ratios for Residential Financing
Your ratio of debt to income is a tool lenders use to determine how much of your income is available for a monthly home loan payment after you meet your various other monthly debt payments.
About your qualifying ratio
Most underwriting for conventional mortgages 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 percentage of your gross monthly income that can be spent on housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes things like car payments, child support and credit card payments.
Some example data:
A 28/36 qualifying ratio
- 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'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be happy to help you pre-qualify to help you determine how much you can afford.
24-7 Mortgage Loans can answer questions about these ratios and many others. Give us a call: 5102009714.