Debt Ratios for Residential Lending

Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you've paid your other recurring debts.

How to figure the qualifying ratio

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

The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, car payments, child support, etcetera.

Examples:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, please use this Mortgage Pre-Qualifying Calculator.

Just Guidelines

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

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

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