Debt Ratios for Residential Lending

Your debt to income ratio is a tool lenders use to determine how much money can be used for your monthly home loan payment after all your other recurring debts have been met.

Understanding your qualifying ratio

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

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 homeowners' insurance, HOA dues, PMI - everything that constitutes the full payment.

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

For example:

28/36 (Conventional)

  • 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 want to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.

Alternative Mortgage Group can walk you through the pitfalls of getting a mortgage. Give us a call: 561-395-4264.