Debt Ratios for Residential Lending

The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other recurring debt obligations have been met.

Understanding your qualifying ratio

In general, conventional mortgages require 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 your gross monthly income that can be spent on housing (including principal and interest, PMI, hazard insurance, property tax, and HOA dues).

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

For example:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, use this Mortgage Qualification Calculator.

Guidelines Only

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

CHASE MORTGAGE INC #317430 can walk you through the pitfalls of getting a mortgage. Call us at 435-755-6622.