Debt Ratios for Home Lending

The ratio of debt to income is a formula lenders use to determine how much money is available for a monthly home loan payment after you meet your various other monthly debt payments.

About your qualifying ratio

Most conventional mortgage loans 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 percentage of gross monthly income that can go to housing costs (this includes mortgage principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).

The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.

For example:

28/36 (Conventional)

  • 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 on your own income and expenses, feel free to use our superb Mortgage Loan Qualifying Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We'd be happy to help you pre-qualify to determine how large a mortgage you can afford.

Custom Lending Group can answer questions about these ratios and many others. Call us at (707) 252-2700.

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