Debt Ratios for Residential Financing

The ratio of debt to income is a formula lenders use to calculate how much of your income can be used for your monthly mortgage payment after all your other recurring debts are fulfilled.

Understanding your qualifying ratio

Most underwriting for conventional mortgages requires 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 amount (as a percentage) of your gross monthly income that can be applied to housing costs (including mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association 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. For purposes of this ratio, debt includes credit card payments, car loans, child support, and the like.

For example:

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, use this Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.

Savers Home Loans can walk you through the pitfalls of getting a mortgage. Call us at (800) 974-0509.