Debt Ratios for Residential Lending

Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other recurring debts have been met.

Understanding the qualifying ratio

In general, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, 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 costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.

The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes things like car loans, child support and credit card payments.

Some example data:

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'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Pre-Qualification Calculator.

Just Guidelines

Remember these are just guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.

At Primemax Mortgage Group, NMLS#195523, we answer questions about qualifying all the time. Give us a call at 2565439211.