Debt Ratios for Residential Lending

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Your ratio of debt to income is a tool lenders use to calculate how much of your income is available for your monthly home loan payment after all your other recurring debt obligations have been met.

How to figure the 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) 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 hazard insurance, homeowners' dues, PMI - everything that constitutes the payment.

The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes things like car loans, child support and credit card payments.

Examples:

28/36 (Conventional)

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, please use this Mortgage Loan Qualifying Calculator.

Just Guidelines

Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.

VENTURE DEVELOPMENT INC can walk you through the pitfalls of getting a mortgage. Give us a call at 952-929-2577.


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