Debt Ratios for Residential Lending
The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly home loan payment after you meet your various other monthly debt payments.
About your qualifying ratio
Usually, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing (including loan principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.
Some example data:
A 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, please use this Loan Qualification Calculator.
Don't forget these are only guidelines. We'd be happy to help you pre-qualify to help you figure out how large a mortgage you can afford.
The Mortgage Exchange Service LLC can answer questions about these ratios and many others. Give us a call: 703.255-5810.