Debt Ratios for Residential Financing

Your ratio of debt to income is a tool lenders use to calculate how much money can be used for a monthly home loan payment after you have met your other monthly debt payments.

Understanding your qualifying ratio

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

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing costs (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes vehicle payments, child support and credit card payments.

For example:

With a 28/36 qualifying ratio

  • 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 want to run your own numbers, feel free to use our superb Mortgage Qualifying Calculator.

Just Guidelines

Don't forget these are just guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage you can afford.

Savers Home Loans can answer questions about these ratios and many others. Give us a call: (800) 974-0509.