Debt Ratios for Residential Lending

The ratio of debt to income is a tool lenders use to determine how much of your income is available for your monthly mortgage payment after you meet your other monthly debt payments.

How to figure the qualifying ratio

Usually, underwriting for conventional loans requires 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.

For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that constitutes the full payment.

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 auto/boat payments, child support and monthly credit card payments.

Some example data:

With a 28/36 qualifying ratio

• 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, use this Mortgage Loan Qualification Calculator.

Just Guidelines

Remember these ratios are just guidelines. We'd be happy to pre-qualify you to help you determine how large a mortgage loan you can afford.

Bob Rutledge Mortgage can answer questions about these ratios and many others. Give us a call: 3149139678.