Debt Ratios for Residential Financing

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

About your qualifying ratio

For the most part, underwriting for conventional loans 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 in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes auto/boat loans, child support and monthly credit card payments.

Some example data:

28/36 (Conventional)

  • 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'd like to run your own numbers, use this Mortgage Loan Pre-Qualification Calculator.

Guidelines Only

Remember these are only guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.

Reliance Mortgage Service, Inc can walk you through the pitfalls of getting a mortgage. Give us a call: 562 320-0510.

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