Debt Ratios for Residential Lending

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring loans.

How to figure the qualifying ratio

Typically, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything.

The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, child support, etcetera.

For example:

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 Loan Qualification Calculator.

Just Guidelines

Remember these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage you can afford.

Ward Kilduff Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at (860) 658-7100.

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