Debt Ratios for Residential Lending

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Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.

Understanding the qualifying ratio

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

For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that constitutes the full payment.

The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. Recurring debt includes vehicle payments, child support and monthly credit card payments.

For example:

28/36 (Conventional)

• Gross monthly income of $2,700 x .28 = $756 can be applied to housing
• Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $2,700 x .29 = $783 can be applied to housing
• Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, we offer a Loan Qualifying Calculator.

Guidelines Only

Remember these are only guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.

California Home Solution can answer questions about these ratios and many others. Call us at 818 999-6070.