Debt Ratios for Residential Lending

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other recurring debts.

How to figure your 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) qualifying ratio.

The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that constitutes the full payment.

The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes things like car payments, child support and monthly credit card payments.

For example:

With a 28/36 qualifying ratio

• Gross monthly income of $2,700 x .28 = $756 can be applied to housing
• Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $2,700 x .29 = $783 can be applied to housing
• Gross monthly income of $2,700 x .41 = $1,107 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 Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.

At Mortgage Headquarters of Missouri, Inc, we answer questions about qualifying all the time. Give us a call: 5733029990.