Debt Ratios for Residential Lending

Your debt to income ratio is a tool lenders use to calculate how much of your income can be used for your monthly home loan payment after you meet your other monthly debt payments.

Understanding your qualifying ratio

In general, 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 the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.

Some example data:

A 28/36 ratio

  • 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 want to run your own numbers, we offer a Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.

PREMIERE MORTGAGE SERVICES INC. can walk you through the pitfalls of getting a mortgage. Call us at 978-422-2311.

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