Debt Ratios for Residential Lending

The ratio of debt to income is a tool lenders use to calculate how much of your income is available for your monthly home loan payment after all your other recurring debt obligations have been met.

How to figure your qualifying ratio

Most underwriting for conventional mortgages needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

For these ratios, 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, Private Mortgage Insurance - everything.

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

Examples:

28/36 (Conventional)

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Qualification Calculator.

Guidelines Only

Remember these are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.

Real Property Finance can answer questions about these ratios and many others. Give us a call: 310-379-5997.

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