Debt Ratios for Residential Financing
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts are paid.
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) ratio.
In 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 hazard insurance, HOA 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 together. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.
Some example data:
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, please use this Mortgage Pre-Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be happy to help you pre-qualify to help you determine how much you can afford.
At Sky Apply Mortgage, Inc, we answer questions about qualifying all the time. Call us: (813) 200-7931.