Debt Ratios for Residential Financing

Your ratio of debt to income 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

Most conventional loans need 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 spent on housing (this includes principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt. Recurring debt includes things like auto/boat loans, child support and credit card payments.

For example:

A 28/36 ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers with your own financial data, we offer a Loan Pre-Qualifying Calculator.

Just Guidelines

Remember these ratios are only guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage loan you can afford.

Statewide Funding can walk you through the pitfalls of getting a mortgage. Give us a call at (415) 456-7802.

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