Debt Ratios for Residential Lending

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

Understanding the qualifying ratio

For the most part, underwriting for conventional mortgages requires 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 amount (as a percentage) of your gross monthly income that can be applied to housing costs (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that should be spent on housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.

Examples:

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 want to run your own numbers, feel free to use our Mortgage Loan Qualification Calculator.

Guidelines Only

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

Prime Capital Mortgage Corp can walk you through the pitfalls of getting a mortgage. Give us a call at 248-644-1200.

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