Debt Ratios for Residential Lending

The debt to income ratio is a tool lenders use to determine how much money is available for your monthly home loan payment after all your other monthly debt obligations have been met.

About your qualifying ratio

Usually, underwriting for conventional 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 in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing (including mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes things like auto loans, child support and credit card payments.

Examples:

28/36 (Conventional)

  • 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'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.

U.S.A. Lending, Inc. can answer questions about these ratios and many others. Give us a call at 305-967-7200.