Debt Ratios for Residential Lending

The ratio of debt to income is a formula lenders use to determine how much of your income is available for a monthly home loan payment after you meet your other monthly debt payments.

Understanding the qualifying ratio

Typically, underwriting for conventional loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

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

The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car payments, child support, etcetera.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Qualifying Calculator.

Just Guidelines

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

At Price Mortgage Group LLC, we answer questions about qualifying all the time. Give us a call at 405-513-7700.

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