Debt Ratios for Residential Lending

The debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly mortgage payment after all your other recurring debt obligations are fulfilled.

Understanding the qualifying ratio

Usually, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (including loan principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).

The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes car payments, child support and monthly credit card payments.

Some example data:

With a 28/36 qualifying ratio

  • 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 calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Qualifying Calculator.

Just Guidelines

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

One Source Lending 303-220-7500 can walk you through the pitfalls of getting a mortgage. Call us: 303-220-7500.