Debt Ratios for Residential Lending

Your ratio of debt to income is a tool lenders use to determine how much of your income is available for your monthly mortgage payment after you meet your various other monthly debt payments.

Understanding your qualifying ratio

For the most part, underwriting for conventional mortgage loans requires 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 hazard insurance, homeowners' dues, PMI - everything.

The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.

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, feel free to use our superb Mortgage Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We'd be thrilled to help you pre-qualify to help you figure out how large a mortgage 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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