Debt Ratios for Residential Financing

Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other monthly debt obligations have been met.

How to figure your qualifying ratio

In general, conventional mortgage loans need 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.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, taxes, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, and the like.

Examples:

A 28/36 ratio

  • 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'd like to calculate pre-qualification numbers with your own financial data, we offer a Loan Pre-Qualifying Calculator.

Guidelines Only

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

Ward Kilduff Mortgage can answer questions about these ratios and many others. Call us: (860) 658-7100.

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