Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts are paid.
How to figure your qualifying ratio
Most underwriting for conventional mortgage loans 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 gross monthly income that can be spent on housing (including loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, and the like.
For example:
A 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, use this Mortgage Qualification Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be happy to help you pre-qualify to help you determine how large a mortgage loan you can afford.
At U.S.A. Lending, Inc., we answer questions about qualifying all the time. Call us at 305-967-7200.