Debt Ratios for Residential Financing

Your ratio of debt to income is a tool lenders use to calculate how much money is available for a monthly home loan payment after all your other monthly debts have been fulfilled.

Understanding your qualifying ratio

For the most part, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (including principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes auto payments, child support and monthly credit card payments.

Examples:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 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 Loan Pre-Qualifying Calculator.

Guidelines Only

Remember these ratios are only guidelines. We'd be happy to help you pre-qualify to determine how large a mortgage you can afford.

At Mario Vega, we answer questions about qualifying all the time. Give us a call: 877-310-6200.

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