Debt Ratios for Residential Financing

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

How to figure your qualifying ratio

In general, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 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 (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto payments, child support, etcetera.

Examples:

A 28/36 qualifying ratio

  • 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 superb Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to determine how large a mortgage loan you can afford.

At Chris Caggiano - Grand Oaks Funding, LLC, we answer questions about qualifying all the time. Call us at (718) 477-4405.

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