Debt Ratios for Residential Financing

Your debt to income ratio is a formula lenders use to determine how much money can be used for your monthly mortgage payment after all your other recurring debts are met.

Understanding the qualifying ratio

Typically, conventional mortgages need 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 percentage of your gross monthly income that can go to housing costs (including mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes auto/boat loans, child support and monthly credit card payments.

For example:

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'd like to calculate pre-qualification numbers with your own financial data, we offer a Loan Qualification Calculator.

Just Guidelines

Don't forget these are just guidelines. We'd be happy to help you pre-qualify to help you determine how large a mortgage you can afford.

VSI Home Lending can walk you through the pitfalls of getting a mortgage. Give us a call: (260) 338-2561.

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