Debt Ratios for Residential Financing

Your debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly mortgage payment after all your other recurring debt obligations have been fulfilled.

Understanding the qualifying ratio

Typically, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (this includes principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).

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

Examples:

A 28/36 qualifying ratio

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, we offer a Loan Qualification Calculator.

Guidelines Only

Remember these are only guidelines. We'd be thrilled to pre-qualify you to help you determine how much you can afford.

At Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234, we answer questions about qualifying all the time. Give us a call at 214-663-5355.