Debt Ratios for Residential Financing

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.

Understanding the qualifying ratio

Usually, 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) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, taxes, and homeowners' association dues).

The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto payments, child support, and the like.

Examples:

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 want to run your own numbers, feel free to use our superb Loan Pre-Qualification Calculator.

Guidelines Only

Remember these are just guidelines. We will be thrilled to pre-qualify you to determine how much you can afford.

Firelight Mortgage Consultants can walk you through the pitfalls of getting a mortgage. Give us a call at 3032282254.

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Firelight Mortgage Consultants

Company NMLS#: 381658

7887 East Belleview Ave Ste 1100
Englewood, CO 80111