Debt Ratios for Residential Lending

Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts have been paid.

Understanding the qualifying ratio

Usually, underwriting for conventional mortgage loans needs 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 percentage of gross monthly income that can be spent on housing (this includes principal and interest, PMI, hazard 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 auto/boat payments, child support and credit card payments.

For example:

28/36 (Conventional)

  • 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 run your own numbers, we offer a Mortgage Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We will be happy to go over pre-qualification to help you figure out how much you can afford.

Real Property Finance can walk you through the pitfalls of getting a mortgage. Call us: 310-379-5997.

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