Debt Ratios for Home Financing

Your ratio of debt to income is a formula lenders use to determine how much money can be used for your monthly mortgage payment after you have met your various other monthly debt payments.

Understanding your qualifying ratio

Typically, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.

The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, etcetera.

Some example data:

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'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Remember these are just guidelines. We will be happy to help you pre-qualify to help you determine how large a mortgage loan you can afford.

At Executive Lending Group, LLC, we answer questions about qualifying all the time. Give us a call at 8165258000.

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