Debt Ratios for Residential Financing

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other recurring loans.

How to figure the qualifying ratio

Typically, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, 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 applied to housing (including mortgage principal and interest, PMI, hazard insurance, property taxes, and HOA dues).

The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.

For example:

With a 28/36 qualifying ratio

• Gross monthly income of $2,700 x .28 = $756 can be applied to housing
• Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $2,700 x .29 = $783 can be applied to housing
• Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.

Firelight Mortgage Consultants can answer questions about these ratios and many others. Call us at 7209331025.