Debt Ratios for Residential Lending

The debt to income ratio is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other recurring debts have been fulfilled.

About your qualifying ratio

Usually, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.

Examples:

With a 28/36 ratio

  • 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'd like to run your own numbers, we offer a Mortgage Loan Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We will be happy to pre-qualify you to determine how large a mortgage you can afford.

At Alternative Mortgage Group, we answer questions about qualifying all the time. Call us at 561-395-4264.