Debt Ratios for Residential Lending

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other monthly debts.

How to figure your qualifying ratio

Most conventional mortgage loans require 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing (this includes principal and interest, PMI, hazard insurance, property taxes, and HOA dues).

The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, vehicle loans, child support, etcetera.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, use this Mortgage Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.

Avalon Mortgage Services, Inc. can walk you through the pitfalls of getting a mortgage. Call us: (708) 403-5181.

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