Debt Ratios for Residential Lending
The ratio of debt to income is a tool lenders use to determine how much of your income can be used for a monthly mortgage payment after you meet your other monthly debt payments.
Understanding your qualifying ratio
Typically, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto payments, child support, etcetera.
A 28/36 qualifying 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 run your own numbers, use this Mortgage Loan Qualifying Calculator.
Remember these are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
At Price Mortgage Group LLC, we answer questions about qualifying all the time. Give us a call: 405-513-7700.