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Debt Ratios for Residential Lending

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

About the qualifying ratio

Usually, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (including loan principal and interest, PMI, homeowner's insurance, taxes, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes car loans, child support and credit card payments.

Examples:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Loan Qualifying Calculator.

Guidelines Only

Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to determine how large a mortgage loan you can afford.

Town & Country Home Loans, Inc. can walk you through the pitfalls of getting a mortgage. Call us at (760)789-9995.

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