Debt Ratios for Home Financing

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Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly debts.

Understanding 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) ratio.

The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.

Examples:

28/36 (Conventional)

• Gross monthly income of $2,700 x .28 = $756 can be applied to housing
• Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $2,700 x .29 = $783 can be applied to housing
• Gross monthly income of $2,700 x .41 = $1,107 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 Qualification Calculator.

Guidelines Only

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

At Mortgage Experts, Inc., we answer questions about qualifying all the time. Call us: 503-690-3088.