Debt Ratios for Home Financing

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

How to figure your qualifying ratio

In general, conventional loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing (including principal and interest, private mortgage insurance, hazard insurance, taxes, and homeowners' association dues).

The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, auto/boat loans, child support, etcetera.

Examples:

With a 28/36 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, use this Loan Qualifying Calculator.

Just Guidelines

Remember these are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.

Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234 can answer questions about these ratios and many others. Give us a call: 2146635355.