Debt Ratios for Residential Lending

The debt to income ratio is a tool lenders use to determine how much money can be used for your monthly home loan payment after you have met your various other monthly debt payments.

Understanding the qualifying ratio

Usually, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (including principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).

The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes auto/boat payments, child support and credit card payments.

Some example data:

A 28/36 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.

Guidelines Only

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

BancZone can walk you through the pitfalls of getting a mortgage. Call us: 407-583-6250.

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