Debt Ratios for Residential Lending

Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other recurring debt obligations are fulfilled.

How to figure the qualifying ratio

For the most part, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes things like auto payments, child support and monthly credit card payments.

Examples:

A 28/36 ratio

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, we offer a Mortgage Loan Qualification Calculator.

Guidelines Only

Remember these are just guidelines. We will be thrilled to pre-qualify you to determine how much you can afford.

At Amity Mortgage LLC, we answer questions about qualifying all the time. Give us a call: (203) 729-6681.

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