Debt Ratios for Residential Financing

Your ratio of debt to income is a tool lenders use to determine how much money is available for your monthly mortgage payment after you meet your other monthly debt payments.

About your qualifying ratio

For the most part, conventional mortgages 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 gross monthly income that can be spent on housing costs (this includes loan principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes auto payments, child support and monthly credit card payments.

For example:

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 run your own numbers, we offer a Loan Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We'd be happy to pre-qualify you to help you determine how large a mortgage you can afford.

At American Commerce Mortgage, we answer questions about qualifying all the time. Call us: 714-970-9700.

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