Debt Ratios for Residential Lending

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

Understanding your qualifying ratio

In general, conventional 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) ratio.

The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the payment.

The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, car loans, child support, etcetera.

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 want to calculate pre-qualification numbers with your own financial data, use this Loan Pre-Qualifying Calculator.

Just Guidelines

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

Great Mortgage NMLS#478647 can answer questions about these ratios and many others. Call us: 708.966.9005.

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