Debt Ratios for Residential Financing

The ratio of debt to income is a tool lenders use to determine how much money can be used for your monthly home loan payment after all your other recurring debts have been fulfilled.

About your qualifying ratio

Typically, conventional mortgage loans require 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 percentage of gross monthly income that can go to housing costs (including principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, etcetera.

For example:

A 28/36 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'd like to run your own numbers, please use this Loan Qualification Calculator.

Just Guidelines

Remember these ratios are just guidelines. We will be happy to go over pre-qualification to determine how much you can afford.

ADVISORY MORTGAGE can walk you through the pitfalls of getting a mortgage. Give us a call at 8102292820.