Debt Ratios for Residential Lending

The ratio of debt to income is a tool lenders use to determine how much of your income can be used for a monthly home loan payment after all your other recurring debts are fulfilled.

How to figure your qualifying ratio

Most underwriting for conventional mortgages 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing costs (including mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).

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

For example:

A 28/36 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 run your own numbers, feel free to use our superb Mortgage Loan Qualification Calculator.

Guidelines Only

Remember these are only guidelines. We will be thrilled to pre-qualify you to help you determine how much you can afford.

New Millennium Mortgage Co. NMLS: 331173 can answer questions about these ratios and many others. Call us: (941) 366-5800.

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