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 monthly debts.

Understanding your qualifying ratio

Typically, underwriting for conventional loans requires 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 in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing costs (this includes principal and interest, private mortgage insurance, homeowner's insurance, taxes, and HOA dues).

The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

For example:

With a 28/36 ratio

• Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
• Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
• Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.

At Harbor View Lending* a DBA of Megastar Financial, we answer questions about qualifying all the time. Give us a call: (207) 571-8034.