Debt Ratios for Residential Financing

Your debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly home loan payment after you have met your various other monthly debt payments.

Understanding your qualifying ratio

Typically, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up 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 things like auto/boat payments, child support and monthly credit card payments.

For example:

28/36 (Conventional)

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, use this Mortgage Qualification Calculator.

Just Guidelines

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

At Financial Edge Mortgage Corp., we answer questions about qualifying all the time. Call us at 425-508-9988.

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