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Debt Ratios for Residential Lending

The ratio of debt to income is a formula lenders use to calculate how much money is available for your monthly mortgage payment after all your other monthly debts are met.

About the qualifying ratio

Most conventional loans require 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 is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.

The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes vehicle loans, child support and credit card payments.

Examples:

A 28/36 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 run your own numbers, use this Mortgage Pre-Qualifying Calculator.

Guidelines Only

Remember these are only guidelines. We will be thrilled to go over pre-qualification to determine how much you can afford.

At Town & Country Home Loans, Inc., we answer questions about qualifying all the time. Call us: (760)789-9995.

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