Debt Ratios for Residential Financing

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

How to figure your qualifying ratio

Usually, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, car loans, child support, et cetera.

Some example data:

A 28/36 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, we offer a Mortgage Loan Qualifying Calculator.