Debt Ratios for Residential Financing

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

How to figure your qualifying ratio

For the most part, underwriting for conventional mortgage loans 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 the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.

The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt. Recurring debt includes credit card payments, auto payments, child support, etcetera.

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, we offer a Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.

Capacity Lending, LLC can answer questions about these ratios and many others. Give us a call: 469-640-0400.

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