Debt Ratios for Residential Lending

The debt to income ratio 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 have been fulfilled.

Understanding your qualifying ratio

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

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (including loan principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, etcetera.

For example:

28/36 (Conventional)

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers with your own financial data, use this Mortgage Qualification Calculator.

Guidelines Only

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

Sky Apply Mortgage can answer questions about these ratios and many others. Call us at (813) 200-7931.

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