Debt Ratios for Home Lending

Your ratio of debt to income is a tool lenders use to calculate how much money is available for a monthly mortgage payment after all your other recurring debt obligations have been fulfilled.

About your qualifying ratio

For the most part, underwriting for conventional mortgage loans 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 is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the payment.

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes vehicle 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 want to run your own numbers, please use this Mortgage Pre-Qualification Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.

Custom Lending Group can answer questions about these ratios and many others. Give us a call: (707) 252-2700.

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