Debt Ratios for Residential Lending

The debt to income ratio is a formula lenders use to calculate how much money is available for a monthly home loan payment after all your other recurring debt obligations have been met.

How to figure your qualifying ratio

In general, 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 amount (as a percentage) of gross monthly income that can go to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, property taxes, and HOA dues).

The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes things like auto/boat loans, child support and credit card payments.

For example:

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 want to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We'd be happy to help you pre-qualify 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 at 4056158543.

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Executive Lending Group

A Division of 1st Capital Mortgage LLC

2401 Tee Circle, STE 102B
Norman, OK 73069