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 your monthly mortgage payment after you have met your various other monthly debt payments.

How to figure your qualifying ratio

Most underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing (this includes mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. Recurring debt includes auto/boat payments, child support and credit card payments.

For example:

With a 28/36 qualifying ratio

• 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, feel free to use our very useful Mortgage Pre-Qualification Calculator.

Just Guidelines

Don't forget these are just guidelines. We will be happy to help you pre-qualify to help you determine how large a mortgage you can afford.

At Not Your Average Lender, we answer questions about qualifying all the time. Call us: 9722039033.