Debt Ratios for Home Lending
The ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly home loan payment after you meet your other monthly debt payments.
How to figure your qualifying ratio
For the most part, 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) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (including mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes things like auto loans, child support and credit card payments.
For example:
28/36 (Conventional)
- 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 with your own financial data, feel free to use our Loan Qualification Calculator.
Guidelines Only
Don't forget these are just guidelines. We will be thrilled to pre-qualify you to help you determine how much you can afford.
Executive Lending Group, LLC can answer questions about these ratios and many others. Call us at (816) 525-8000.