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Debt Ratios for Residential Financing

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Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts are paid.

How to figure the qualifying ratio

Most conventional mortgage loans require 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 be applied to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, property tax, and HOA dues).

The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto payments, child support, et cetera.

Examples:

28/36 (Conventional)

  • 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'd like to run your own numbers, feel free to use our very useful Loan Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.

We answer questions about qualifying all the time. Give us a call: (520)820-1332.