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.

About the qualifying ratio

In general, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, 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, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.

The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, and the like.

Examples:

28/36 (Conventional)

• Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
• Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
• Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

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

Guidelines Only

Remember these are only guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.

Foxfield Financial can walk you through the pitfalls of getting a mortgage. Give us a call at 720-598-8300.