Debt Ratios for Residential Lending
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Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts have been paid.
Understanding your qualifying ratio
Most underwriting for conventional loans requires 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 percentage of gross monthly income that can go to housing (including principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes auto/boat payments, child support and monthly credit card payments.
For example:
A 28/36 qualifying 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 want to calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Loan Pre-Qualifying Calculator.
Don't forget these ratios are just guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage you can afford. MortgageCompanyName can walk you through the pitfalls of getting a mortgage. Give us a call: (208) 788-8800.