Debt Ratios for Residential Financing

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The debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly mortgage payment after you meet your other monthly debt payments.

About your qualifying ratio

Usually, 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) qualifying ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing costs (this includes mortgage principal and interest, PMI, homeowner's insurance, property 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 together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, et cetera.

For example:

A 28/36 qualifying ratio

• 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 with your own financial data, we offer a Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to determine how large a mortgage loan you can afford.

Liberty Mortgage Associates Inc. can walk you through the pitfalls of getting a mortgage. Call us at 877-799-4015.