Debt Ratios for Residential Financing

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

How to figure your qualifying ratio

For the most part, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.

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

Examples:

With a 28/36 qualifying ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, feel free to use our superb Mortgage Loan Pre-Qualifying Calculator.

Just Guidelines

Don't forget these are just guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.

Affirm Home Loans can walk you through the pitfalls of getting a mortgage. Give us a call: (972) 292-0448.

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