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Debt Ratios for Home Financing

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

Understanding the qualifying ratio

Most underwriting for conventional loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (including mortgage principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, etcetera.

Examples:

A 28/36 qualifying ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, feel free to use our superb Loan Qualifying Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We'd be thrilled to go over pre-qualification to determine how large a mortgage loan you can afford.

At Town & Country Home Loans, Inc., we answer questions about qualifying all the time. Call us: (760)789-9995.

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