Debt Ratios for Residential Financing

The debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other monthly debt obligations are fulfilled.

How to figure your qualifying ratio

In general, underwriting for conventional mortgages requires 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (this includes loan principal and interest, PMI, homeowner's insurance, property taxes, 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 expenses and recurring debt together. Recurring debt includes credit card payments, car payments, child support, and the like.

Some example data:

With a 28/36 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, please use this Mortgage Loan Qualification Calculator.

Just Guidelines

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

Net Equity Financial Mortgage can answer questions about these ratios and many others. Give us a call: (215)741-3131.

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