Debt Ratios for Residential Financing

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other monthly loans.

Understanding the qualifying ratio

For the most part, conventional loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

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

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

For example:

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 want to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Qualification Calculator.

Just Guidelines

Remember these are just guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.

Greystone Loans, Inc. can answer questions about these ratios and many others. Call us: 9094671090.