Debt Ratios for Residential Lending

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other monthly debts.

About your qualifying ratio

Typically, conventional 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 is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.

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

For example:

A 28/36 qualifying 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'd like to run your own numbers, feel free to use our very useful Mortgage Pre-Qualification Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We will be thrilled to pre-qualify you to help you figure out how much 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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