Debt Ratios for Residential Lending

Your debt to income ratio is a tool lenders use to determine how much money is available for your monthly mortgage payment after you meet your various other monthly debt payments.

Understanding your qualifying ratio

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

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

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

Some example data:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, feel free to use our very useful Mortgage Loan Qualification Calculator.

Guidelines Only

Don't forget these are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.

At PREMIERE MORTGAGE SERVICES, INC., we answer questions about qualifying all the time. Call us at 978-422-2311.

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