Debt Ratios for Residential Lending

Your ratio of debt to income is a formula lenders use to determine how much money is available for your monthly home loan payment after all your other recurring debt obligations are fulfilled.

How to figure your qualifying ratio

In general, 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 is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that constitutes the payment.

The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, and the like.

For example:

28/36 (Conventional)

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Qualifying Calculator.

Just Guidelines

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

Saab Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at 703-288-0777.

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