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 monthly debts.

How to figure your qualifying ratio

Typically, underwriting for conventional mortgages needs 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 (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

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

Some example data:

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 with your own financial data, feel free to use our very useful Mortgage Loan Qualifying Calculator.

Just Guidelines

Remember these ratios are only guidelines. We will be happy to pre-qualify you to determine how large a mortgage loan you can afford.

Custom Lending Group can walk you through the pitfalls of getting a mortgage. Give us a call: (707) 252-2700.

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