Debt Ratios for Residential Lending

Your ratio of debt to income is a formula lenders use to determine how much money can be used for your monthly mortgage payment after you meet your various other monthly debt payments.

How to figure your qualifying ratio

Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing costs (including mortgage principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, car payments, child support, and the like.

For example:

With a 28/36 ratio

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, please use this Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.

Norcal Capital Group, Inc can answer questions about these ratios and many others. Call us: (650) 689-5684.

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