Debt Ratios for Home Lending

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Lenders use a ratio called "debt to income" to determine the most amount of money you can pay monthly with your new house payment and your other recurring debts. 

About the qualifying ratio

Usually, underwriting for conventional loans requires a qualifying ratio of 28/36, and can be stretched with compensating factors.  FHA loans are less strict, requiring a 29/41 ratio, and can be stretched as well with compensating factors. 

The first number in a qualifying ratio (28/36) is the maximum percentage of your gross monthly income (before taxes are taken out) that can be applied to housing costs (including loan principal and interest, Private Mortgage Insurance (PMI), homeowner's insurance, property tax, and homeowner or condo association dues).

The second number in the ratio (28/36) is the maximum percentage of your gross monthly income that can be applied to housing costs and your recurring debt.  For purposes of this ratio, debt includes payments on principal, interest, taxes, homeowners insurance, flood insurance, homeowners association dues, condominium association dues, AND credit card payments, any installment debts, student loans, auto payments, alimony, child support. 

Some example data:

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.  (That's a total of $216 for all recurring debt beyond the house payment.)

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.  (That's a total of $324 for all recurring debt beyond the house payment.)

If you want to run your own numbers, please use this Mortgage Loan Pre-Qualification Calculator.

With that being said, there are ways to increase qualifying ratios for loans.  Certain compensating factors are taken into consideration when analyzing a loan application for various programs.  These are:

The ability to save money each month.
Having several months mortgage payments in the bank at closing (called reserves).
Length of time you have lived at your current residence - 24 months.
Length of time at the same place of employment. 
Making a larger down payment than required.
Rent or mortgage history shows you manage a larger payment already.
Borrower receives additional income that cannot be used in qualifying (part time income <2 yrs.

I have been able to obtain much higher ratios, depending on the loan program and compensating factors.  So, do not take these figures as an absolute fact, but realize that this is even more reason to contact me! 

Here's a little tip to help you with planning.  Your monthly income spending formula should be as follows:
100% - OF GROSS INCOME, NOT NET INCOME!  (Underwriting guidelines are written with the illusions that the tax deductions from your pay check are somehow something you can tangibly spend.  All the more reason to have a prepared budget.)

Speaking of budgets, the lending guidelines do not take into consideration any of the following items, when preparing your loan approval, but you should - these are the "25% - Everything Else" category above:

Savings and Retirement Planning
Auto Insurance

Auto Repairs

Auto Registration

Auto Driver’s License

Auto Gasoline

Cell Phone Payments

Church and Charities



Day Care

Dental Bills

Dinners Out

Doctor Bills

Education Costs

Elder Costs


Emergency Funds


Eye Exams/Costs

Fitness Center




Hair Cuts

Holiday Costs

Home Improvements

Home Maintenance

Home Repairs

Laundry & Dry Cleaning

License Renewals – Professional & Unions

Life Insurance


Insurance – Dental

Insurance – Eye

Insurance – Medical


Miscellaneous - Household

Manicure / Pedicure


Pest Control

Pool Supplies

Pool Repairs



Printer Costs & Ink



Tax Preparation Costs



Utilities – Gas, Electric, Water, Sewer


Vet Costs


Remember things are not always as they appear.  I have 35 years of putting these puzzles together, and I will be glad to help you figure out how much you can really afford.  I will walk you through the hurdles of getting a mortgage.  It's a jungle out there, let me be your guide.  Let's get started, call me, Sherry Bitner at : 941-504-1445, or email me at

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