Debt Ratios for Residential Financing

The debt to income ratio is a tool lenders use to calculate how much money can be used for a monthly mortgage payment after you meet your other monthly debt payments.

Understanding the qualifying ratio

Typically, underwriting for conventional mortgages requires 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 amount (as a percentage) of gross monthly income that can be spent on housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, etcetera.

For example:

A 28/36 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 Loan Qualifying Calculator.

Just Guidelines

Remember these are only guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.

At The Lending Source, we answer questions about qualifying all the time. Give us a call at (973) 601-2122.

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