Debt Ratios for Residential Financing

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


Understanding your qualifying ratio

In general, conventional mortgages need 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 percentage of your gross monthly income that can be applied to housing (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto payments, child support, and the like.

Examples:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 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.

Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to determine how large a mortgage loan you can afford. At Colorado Lending Team, we answer questions about qualifying all the time. Call us: 303-350-9493. Want to get started? Apply Here.

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