Debt Ratios for Residential Lending

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.

About your qualifying ratio

For the most part, 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 is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the full payment.

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes vehicle loans, child support and credit card payments.

Some example data:

28/36 (Conventional)

  • 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 run your own numbers, we offer a Mortgage Qualification Calculator.

Guidelines Only

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

Chris Caggiano - Grand Oaks Funding, LLC can walk you through the pitfalls of getting a mortgage. Give us a call at (718) 477-4405.

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