Debt Ratios for Home Financing
Your debt to income ratio is a formula lenders use to calculate how much money is available for a monthly home loan payment after all your other monthly debt obligations have been met.
Understanding the qualifying ratio
Most underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
For these ratios, the first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt together. Recurring debt includes auto/boat payments, child support and monthly credit card payments.
A 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Loan Qualification Calculator.
Remember these ratios are only guidelines. We will be thrilled to help you pre-qualify to help you determine how large a mortgage loan you can afford.