Debt Ratios for Residential Lending

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other recurring debts.

Understanding the qualifying ratio

Usually, 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 go to housing costs (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).

The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.

Some example data:

With a 28/36 qualifying ratio

  • 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 very useful Mortgage Qualification Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.

Riviera Funding NMLS#861382 CA DRE Broker #01186669 can walk you through the pitfalls of getting a mortgage. Call us: 3103737406.

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Riviera Funding NMLS#861382 CA DRE Broker #01186669

1801 S. Catalina Avenue Suite #201
Redondo Beach, CA 90277