Debt Ratios for Home Lending

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

Understanding the qualifying ratio

Most 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.

For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.

The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, vehicle loans, child support, etcetera.

Examples:

A 28/36 qualifying ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Pre-Qualifying Calculator.

Guidelines Only

Remember these ratios are just guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.

Cottingham Mortgage Inc. can answer questions about these ratios and many others. Give us a call at (800) 288-9693.

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