Debt Ratios for Residential Financing

Your ratio of debt to income is a tool lenders use to calculate how much money can be used for a monthly mortgage payment after all your other recurring debts are fulfilled.

Understanding your qualifying ratio

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

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (including loan principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

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 together. Recurring debt includes auto payments, 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 Loan Pre-Qualifying Calculator.

Guidelines Only

Remember these are just guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.

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

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