Debt Ratios for Residential Lending

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

Understanding the qualifying ratio

For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

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

The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto payments, child support, and the like.

Examples:

28/36 (Conventional)

  • 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, feel free to use our superb Loan Qualifying Calculator.

Just Guidelines

Remember these ratios are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.

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

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