Debt Ratios for Residential Financing

The 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 you have met your other monthly debt payments.

How to figure the qualifying ratio

Most conventional mortgage loans need 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 the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.

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

For example:

A 28/36 qualifying ratio

• 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 run your own numbers, feel free to use our Mortgage Qualification Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.

ADVISORY MORTGAGE can walk you through the pitfalls of getting a mortgage. Call us: 8102292820.