Debt Ratios for Residential Lending

The ratio of debt to income is a formula lenders use to calculate how much of your income is available for your monthly mortgage payment after all your other monthly debts have been met.

Understanding your qualifying ratio

Most underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the payment.

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and monthly credit card payments.

Some example data:

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, we offer a Mortgage Qualification Calculator.

Guidelines Only

Remember these ratios are just guidelines. We'd be happy to pre-qualify you to determine how large a mortgage loan you can afford.

At Baywide Funding Corporation, we answer questions about qualifying all the time. Call us: 650 428 0234.