Debt Ratios for Residential Financing

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other monthly debts.

Understanding your qualifying ratio

Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 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 spent on housing (including principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).

The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes car payments, child support and monthly credit card payments.

Examples:

28/36 (Conventional)

  • 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'd like to run your own numbers, feel free to use our Mortgage Pre-Qualifying Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.

Financial Edge Mortgage Corp. can answer questions about these ratios and many others. Give us a call: 425-508-9988.

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