Debt Ratios for Residential Lending

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

How to figure your qualifying ratio

Usually, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing (including 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 that should be spent on housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto/boat payments, child support, and the like.

For example:

A 28/36 qualifying 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 calculate pre-qualification numbers on your own income and expenses, use this Mortgage Loan Qualification Calculator.

Don't forget these ratios are just guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford. At Peoples Discount Mortgage, we answer questions about qualifying all the time. Call us at 909-660-8333.

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