Debt Ratios for Residential Financing
Your debt to income ratio is a tool lenders use to calculate how much of your income can be used for a monthly home loan payment after you have met your other monthly debt payments.
About your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt. Recurring debt includes credit card payments, car loans, child support, etcetera.
A 28/36 ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Loan Qualification Calculator.
Remember these ratios are just guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.
Custom Lending Group can walk you through the pitfalls of getting a mortgage. Call us at (707) 252-2700.