Debt Ratios for Residential Financing

Your ratio of debt to income is a formula 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.

How to figure your qualifying ratio

Typically, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the payment.

The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. Recurring debt includes things like car payments, child support and credit card payments.

Examples:

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 want to run your own numbers, we offer a Mortgage Pre-Qualifying Calculator.

Just Guidelines

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

Cottingham Mortgage Inc. can walk you through the pitfalls of getting a mortgage. Give us a call at (800) 288-9693.

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