Debt Ratios for Residential Financing

Your debt to income ratio is a tool lenders use to determine how much of your income is available for your monthly home loan payment after you have met your various other monthly debt payments.

Understanding the qualifying ratio

Typically, underwriting for conventional mortgage 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 amount (as a percentage) of gross monthly income that can be spent on housing (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, taxes, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, car payments, child support, etcetera.

Some example data:

28/36 (Conventional)

  • 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, feel free to use our superb Mortgage Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We will be happy to pre-qualify you to help you determine how much you can afford.

At Statewide Funding, we answer questions about qualifying all the time. Call us: (415) 456-7802.

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