Debt Ratios for Residential Financing

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The debt to income ratio is a tool lenders use to calculate how much of your income is available for a monthly home loan payment after you have met your various other monthly debt payments.

About the qualifying ratio

Usually, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.

The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.

Some example data:

28/36 (Conventional)

• Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
• Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
• Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.

Just Guidelines

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

PREMIERE MORTGAGE SERVICES INC. can answer questions about these ratios and many others. Give us a call: 978-422-2311.