Debt Ratios for Residential Financing

The ratio of debt to income is a tool lenders use to calculate how much money is available for your monthly mortgage payment after all your other recurring debts have been met.

Understanding your qualifying ratio

Most 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) qualifying ratio.

The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.

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. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, etcetera.

Some example data:

With a 28/36 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 with your own financial data, we offer a Loan Qualifying Calculator.

Just Guidelines

Remember these ratios are just guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.

Reliance Mortgage Service, Inc can answer questions about these ratios and many others. Give us a call: 562 320-0510.

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