Debt Ratios for Residential Lending

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

Understanding the qualifying ratio

In general, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the full payment.

The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.

Some example data:

With a 28/36 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 calculate pre-qualification numbers on your own income and expenses, feel free to use our Mortgage Pre-Qualification Calculator.

Just Guidelines

Remember these ratios are only guidelines. We will be happy to pre-qualify you to help you figure out how large a mortgage you can afford.

Americn Hero Mortgage can answer questions about these ratios and many others. Give us a call at 754-202-4376.

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