Debt Ratios for Residential Lending

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

Understanding your qualifying ratio

Most conventional loans need 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 go to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. Recurring debt includes car payments, child support and credit card payments.

Some example data:

With 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'd like to calculate pre-qualification numbers on your own income and expenses, use this Mortgage Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.

Norcal Capital Group, Inc can walk you through the pitfalls of getting a mortgage. Give us a call: (650) 689-5684.

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