Debt Ratios for Residential Lending

The ratio of debt to income is a formula lenders use to calculate how much money can be used for your monthly mortgage payment after you meet your other monthly debt payments.

How to figure your qualifying ratio

Most 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.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing (this includes mortgage principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, and the like.

For example:

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'd like to run your own numbers, we offer a Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to help you determine how much you can afford.

PREMIERE MORTGAGE SERVICES, INC. can walk you through the pitfalls of getting a mortgage. Give us a call: 978-422-2311.

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