Debt Ratios for Home Financing

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other monthly debts have been paid.

About the qualifying ratio

For the most part, conventional mortgage loans require 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 amount (as a percentage) of gross monthly income that can be spent on housing (this includes loan principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).

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

For example:

With a 28/36 qualifying ratio

• 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 run your own numbers, we offer a Loan Pre-Qualifying Calculator.

Guidelines Only

Remember these ratios are just guidelines. We will be thrilled to help you pre-qualify to help you determine how much you can afford.

At America's Money Source, we answer questions about qualifying all the time. Give us a call at 4078987559.