Debt Ratios for Residential Lending

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

Understanding your qualifying ratio

For the most part, conventional loans need 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 be spent on housing (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, and the like.

For example:

With a 28/36 qualifying ratio

  • 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 calculate pre-qualification numbers on your own income and expenses, feel free to use our Loan Qualification Calculator.

Guidelines Only

Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.

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

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Greystone Loans, Inc.

Opening Doors to the American Dream since 1992

14726 Ramona Ave
Chino, CA 91710-5332