Debt Ratios for Residential Lending

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

Understanding your qualifying ratio

In general, underwriting for conventional mortgages needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (this includes mortgage principal and interest, PMI, homeowner's insurance, taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes things like car payments, child support and credit card payments.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, please use this Mortgage Pre-Qualifying Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We'd be thrilled to help you pre-qualify to help you determine how large a mortgage you can afford.

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

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