Debt Ratios for Residential Financing

Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you have paid your other recurring loans.

How to figure the qualifying ratio

Most conventional mortgages require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

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

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

Examples:

With a 28/36 ratio

  • 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 on your own income and expenses, we offer a Mortgage Loan Pre-Qualifying Calculator.

Guidelines Only

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

VSI Home Lending can answer questions about these ratios and many others. Give us a call: 2603382561.

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