Debt Ratios for Home Lending

The debt to income ratio is a formula lenders use to calculate how much money is available for a monthly home loan payment after you have met your other monthly debt payments.

Understanding your qualifying ratio

Typically, underwriting for conventional 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 in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property taxes, 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 things like auto payments, child support and monthly credit card payments.

For example:

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 on your own income and expenses, please use this Mortgage Loan Pre-Qualifying Calculator.

Guidelines Only

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

Mortgage Headquarters of Missouri, Inc can walk you through the pitfalls of getting a mortgage. Call us: 5733029990.

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