Debt Ratios for Residential Lending

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

How to figure the qualifying ratio

In general, conventional mortgages require 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 amount (as a percentage) of gross monthly income that can be spent on housing costs (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt. Recurring debt includes car payments, child support and monthly credit card payments.

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 want to run your own numbers, we offer a Loan Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We'd be happy to go over pre-qualification to help you figure out how much you can afford.

At 1st Credential Mortgage Inc, we answer questions about qualifying all the time. Call us at (281) 778-0805.

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