Debt Ratios for Residential Financing

Your ratio of debt to income is a tool lenders use to determine how much of your income can be used for your monthly home loan payment after you meet your other monthly debt payments.

How to figure the qualifying ratio

Usually, 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) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing costs (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, auto loans, child support, and the like.

Some example data:

A 28/36 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, we offer a Loan Pre-Qualification Calculator.

Guidelines Only

Remember these ratios are just guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.

At Riviera Funding NMLS#861382 CA DRE Broker #01186669, we answer questions about qualifying all the time. Give us a call: 3103737406.