Debt Ratios for Residential Financing

Your ratio of debt to income is a formula lenders use to determine how much money is available for your monthly mortgage payment after you have met your other monthly debt payments.

How to figure your qualifying ratio

In general, conventional mortgages need 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 go to housing (including principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, car payments, child support, and the like.

For example:

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 run your own numbers, feel free to use our superb Loan Qualifying Calculator.

Guidelines Only

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

Executive Lending Group, LLC can walk you through the pitfalls of getting a mortgage. Give us a call: 8165258000.

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