Debt Ratios for Residential Lending

The debt to income ratio is a tool lenders use to calculate how much money is available for your monthly home loan payment after all your other monthly debt obligations are met.

How to figure the qualifying ratio

For the most part, conventional loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (including loan principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).

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

Examples:

28/36 (Conventional)

  • 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 run your own numbers, please use this Loan Pre-Qualifying Calculator.

Just Guidelines

Remember these are only guidelines. We'd be thrilled to go over pre-qualification to help you figure out how much you can afford.

At Coastal Mortgage Corp., we answer questions about qualifying all the time. Call us: 504-866-5626.

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