Debt Ratios for Residential Lending

Your ratio of debt to income is a formula lenders use to calculate how much of your income can be used for a monthly mortgage payment after all your other recurring debts have been met.

Understanding the qualifying ratio

In general, underwriting for conventional mortgage 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) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing costs (including mortgage 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 which can be spent on housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and monthly credit card payments.

For example:

28/36 (Conventional)

  • 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'd like to run your own numbers, we offer a Loan Qualifying Calculator.

Guidelines Only

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

America's Money Source can answer questions about these ratios and many others. Call us: 4078987559.


America's Money Source

2306 Curry Ford Rd
Orlando, FL 32806