Debt Ratios for Residential Financing
Your ratio of debt to income is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after you have met your various other monthly debt payments.
How to figure your qualifying ratio
Most underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing costs (including principal and interest, PMI, homeowner's insurance, taxes, and homeowners' association dues).
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car payments, child support, etcetera.
Some example data:
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 with your own financial data, feel free to use our superb Mortgage Loan Qualifying Calculator.
Don't forget these are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage you can afford.
Custom Lending Group can walk you through the pitfalls of getting a mortgage. Call us: (707) 252-2700.