Debt Ratios for Residential Lending

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Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other recurring loans.

How to figure the qualifying ratio

There are historic "standards" for looking at qualifying ratios. For the most part, conventional mortgage loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio. However, these are only guidelines and many times we can exceed either of these ratios with compensating factors, like good credit history or available reserves (money left over after closing). Ask one of our mortgage professionals for details. You can reach us at 256-734-6012.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (including mortgage principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, and the like.

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 want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualification Calculator.

Remember these are only guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage you can afford. Willow Bend Mortgage can answer questions about these ratios and many others. Give us a call at (256) 734-6012.


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