Debt Ratios for Home Financing

Your debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly home loan payment after all your other monthly debt obligations are met.

About the qualifying ratio

Typically, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the full payment.

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

Examples:

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'd like to run your own numbers, feel free to use our superb Loan Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage loan 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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