Debt Ratios for Residential Financing

Your ratio of debt to income is a tool lenders use to calculate how much money can be used for a monthly home loan payment after all your other monthly debt obligations are met.

About your qualifying ratio

In general, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (including mortgage principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt. Recurring debt includes credit card payments, auto/boat loans, child support, and the like.

Examples:

28/36 (Conventional)

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, feel free to use our Loan Qualification Calculator.

Guidelines Only

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

Channel Mortgage LLC can answer questions about these ratios and many others. Give us a call at (718) 639-9500.

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