Debt Ratios for Residential Financing

Your debt to income ratio is a tool lenders use to determine how much of your income can be used for your monthly mortgage payment after all your other recurring debt obligations have been fulfilled.

About the qualifying ratio

For the most part, 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.

In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the payment.

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

For example:

A 28/36 qualifying ratio

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, use this Mortgage Pre-Qualifying Calculator.

Guidelines Only

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

Moonstar Mortgage can answer questions about these ratios and many others. Call us at 847-278-7220.

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