Debt Ratios for Home Lending
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts are paid.
Understanding the qualifying ratio
In general, underwriting for conventional mortgage loans requires 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 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 hazard insurance, HOA dues, PMI - everything that constitutes the payment.
The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be thrilled to pre-qualify you to help you figure out how large a mortgage you can afford.
At Custom Lending Group, we answer questions about qualifying all the time. Call us: 7072522700.