Debt Ratios for Residential Financing

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

Understanding the qualifying ratio

For the most part, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 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 in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.

For example:

28/36 (Conventional)

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.

Just Guidelines

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

At Ward Kilduff Mortgage, we answer questions about qualifying all the time. Give us a call: (860) 658-7100.

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