Debt Ratios for Residential Lending

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

Typically, conventional mortgages require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying 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 loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, etcetera.

Examples:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers with your own financial data, use this Loan Qualification Calculator.

Guidelines Only

Remember these are only guidelines. We will be happy to pre-qualify you to help you determine how much you can afford.

At Colorado Mortgage Company, we answer questions about qualifying all the time. Give us a call: 719-357-6601.

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