Debt Ratios for Residential Financing

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The ratio of debt to income is a tool lenders use to calculate how much of your income is available for a monthly home loan payment after you have met your other monthly debt payments.

About your qualifying ratio

Typically, underwriting for conventional loans requires a qualifying ratio of around 43% of your pretax MONTHLY income. FHA loans may be a little less restrictive, requiring a 41% but with allowances for higher with "compensating factors".  Ratios for Jumbo loans (over $417K) may be as low as 38% depending on the investor.

Your ratio is figured on your total monthly mortgage payment, including homeowners' insurance, homeowners' dues, PMI - everything that constitutes the payment AND minimum required payments on all credit type debts (credit cards, auto loans, student loans-including those not yet due), other real estate, and child support or alimony.

Some example data:

43% (Conventional)

  • Gross monthly income of $3,500 x .36 = $1,505 can be applied to recurring monthly debts plus housing expenses (PITI)

With a 41 (FHA) qualifying ratio

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

If you'd like to calculate pre-qualification numbers on your own income and expenses, please use this Loan Qualifying Calculator.

Don't forget these are only guidelines. We'd be thrilled to help you pre-qualify to help you determine how large a mortgage loan you can afford and qualify for. At our office, we answer questions about qualifying all the time. Give Ann Jones at (512) 422-9036.

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