Debt Ratios for Residential Lending

The ratio of debt to income is a tool lenders use to calculate how much money can be used for your monthly mortgage payment after all your other monthly debts have been met.


Understanding your qualifying ratio

Typically, conventional loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

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

The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt. Recurring debt includes auto loans, child support and monthly credit card payments.

Some example data:

A 28/36 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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our superb Mortgage Pre-Qualifying Calculator.

Don't forget these are just guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage you can afford. At ICM Lending, we answer questions about qualifying all the time. Give us a call at 714-713-9193. Want to get started? Apply Online Now.

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