Debt Ratios for Home Lending

The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly home loan payment after all your other recurring debts have been fulfilled.

About the qualifying ratio

For the most part, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

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

The second number is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. Recurring debt includes credit card payments, car loans, child support, and the like.

For example:

With a 28/36 qualifying ratio

  • 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

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

If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Qualifying Calculator.

Guidelines Only

Remember these are just guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.

American Mortgage Advisers, Inc can walk you through the pitfalls of getting a mortgage. Call us: 2148657442.

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