Debt Ratios for Residential Financing

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

Understanding the qualifying ratio

Usually, 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) ratio.

In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.

The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, etcetera.

Some example data:

28/36 (Conventional)

• Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
• Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
• Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, please use this Loan Pre-Qualification Calculator.

Just Guidelines

Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage you can afford.

At New Millennium Mortgage Co. NMLS: 331173, we answer questions about qualifying all the time. Give us a call at (941) 366-5800.