Debt Ratios for Home Lending

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

How to figure the qualifying ratio

Most underwriting for conventional mortgages 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 your gross monthly income that can be applied to housing (including principal and interest, PMI, hazard 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 together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, etcetera.

Examples:

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 want to calculate pre-qualification numbers with your own financial data, use this Loan Pre-Qualifying Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.

Reliance Mortgage Service, Inc can walk you through the pitfalls of getting a mortgage. Call us at 562 320-0510.

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