Debt Ratios for Residential Financing

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

How to figure the qualifying ratio

For the most part, 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) qualifying ratio.

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

The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, etcetera.

For example:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, please use this Mortgage Qualifying Calculator.

Guidelines Only

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

Alerus Mortgage can answer questions about these ratios and many others. Give us a call: 952 417 8481.

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