Debt Ratios for Residential Lending

Your ratio of debt to income is a formula lenders use to calculate how much money is available for your monthly home loan payment after all your other monthly debts are met.

How to figure your qualifying ratio

For the most part, underwriting for conventional mortgage 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 amount (as a percentage) of your gross monthly income that can go to housing costs (this includes mortgage principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, vehicle loans, child support, et cetera.

Examples:

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 Qualifying Calculator.