Debt Ratios for Residential Lending

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

Understanding your qualifying ratio

For the most part, underwriting for conventional 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) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes things like vehicle payments, child support and credit card payments.

Examples:

A 28/36 qualifying 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'd like to run your own numbers, use this Mortgage Loan Pre-Qualifying Calculator.

Guidelines Only

Remember these are just guidelines. We will be thrilled to go over pre-qualification to determine how much you can afford.

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

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