Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts are paid.
About the qualifying ratio
Usually, underwriting for conventional 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 amount (as a percentage) of your gross monthly income that can be applied to housing (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat loans, child support and credit card payments.
Some example data:
With a 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, we offer a Loan Qualification Calculator.
Remember these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
At Executive Lending Group, we answer questions about qualifying all the time. Give us a call: 4056158543.