Debt Ratios for Residential Financing

The debt to income ratio is a formula lenders use to calculate how much money is available for your monthly mortgage payment after you have met your other monthly debt payments.

About your qualifying ratio

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

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing (including principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes things like car loans, child support and credit card payments.

Examples:

With a 28/36 ratio

  • 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 run your own numbers, feel free to use our superb Mortgage Loan Qualifying Calculator.

Guidelines Only

Remember these ratios are only guidelines. We will be thrilled to go over pre-qualification to determine how large a mortgage you can afford.

PREMIERE MORTGAGE SERVICES, INC. can answer questions about these ratios and many others. Call us at 978-422-2311.

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