Debt Ratios for Residential Financing

The debt to income ratio is a formula lenders use to determine how much of your income can be used for your monthly mortgage payment after all your other monthly debts are met.


How to figure your qualifying ratio

Most conventional mortgages require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing (this includes principal and interest, PMI, hazard insurance, property tax, and HOA dues).

The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes things like auto loans, child support and monthly credit card payments.

Examples:

A 28/36 ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses


If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Qualification Calculator.

Don't forget these are only guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage you can afford. JOANNE AHN can answer questions about these ratios and many others. Call us: 415-999-2439. Ready to get started? Apply Here.

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