Debt Ratios for Residential Lending

The ratio of debt to income is a formula lenders use to determine how much money can be used for your monthly mortgage payment after all your other monthly debts have been met.

Understanding the qualifying ratio

For the most part, conventional mortgages need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the full payment.

The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, and the like.

Examples:

With a 28/36 qualifying ratio

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Qualifying Calculator.

Guidelines Only

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

Financial Edge Mortgage Corp. can walk you through the pitfalls of getting a mortgage. Call us: 425-508-9988.

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