Debt Ratios for Residential Financing

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly loans.

About your qualifying ratio

Most conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

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, HOA dues, PMI - everything.

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. Recurring debt includes credit card payments, car loans, child support, etcetera.

Some example data:

28/36 (Conventional)

  • 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 calculate pre-qualification numbers with your own financial data, use this Loan Qualifying Calculator.

Guidelines Only

Remember these are just guidelines. We'd be happy to help you pre-qualify 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. Give us a call at (650) 689-5684.

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